Oregon resident with a K-1 (1120S) from California. Is the tax credit request in Oregon or California?

[Rumii]

I've received a taxable K-1 from an SCorp.
I've filed the amount in both Oregon (my home state), and on a non-resident California return.

The laws between Oregon and California are not clear to me.

The credit to prevent double-taxation is normally given on the home state return, but I've read some advice that says when it's between California and Oregon, the tax credit should be on the California return.

Which is it?

[DanielV01 · Accepted solution]

The credit will be on the California return.  Usually, when you have income from a nonresident state, it is taxed both by the state where it is earned as well as by the state where you live.  To prevent (or lessen) the effect of double-taxation, the resident state will give a credit for the tax you must pay to the nonresident state for the income produced in that state.  

However, Oregon and California are reverse credit states.  This means that the credit works in reverse:  the nonresident state will give you a credit for the taxes you pay to your resident state.  Thus, since you are an Oregon resident, you will prepare the Oregon state return first, and then, when finished, prepare the California return.  The tax credit from Oregon will reduce the California tax, possibly down to $0.

The fact that the income is generated from an S-Corp does not matter in this case.  Rather, it is the fact that you live in Oregon, and the income comes from California.

[toshi-minoura]

We live in Oregon and have income from California. I vaguely remember that the instruction for Turbotax once stated that we should calculate the tax for California first and use that mount  as a credit for the tax in Oregon.  Does the current Turbotax work as you describe?

If you now the California and Oregon tax forms related to this topic, let me know.

[MarilynG1]

Yes, you should prepare your California Non-Resident return first, as you mentioned.

Click this link detailed info on How to File a Non-Resident State Return.

TurboTax will prepare a California 540NR for you.

In your Oregon interview, you will be asked if you paid taxes to another state.

This link has the steps for Reporting Tax Paid to Another State.

[toshi-minoura]

 > Yes, you should prepare your California Non-Resident return first.

When the resident state of a taxpayer is Oregon, and the nonresident state is California.  The credit  for the tax paid for the nonresident income in California is passed from Oregon to California as these states use Reverse Credit. It is better to create the tax return for Oregon first. The tax to be paid in California is calculated by Schedule S Other State Tax Credit in the California Nonresident or Part Year Resident Income Return 540 NR for California. In this form, the tax paid in Oregon for the nonresident income in California is calculated as

  Income in California  x (Income Tax in Oregon / Adjusted Gross Income in Oregon)

The article cited is not for a case of Reverse Credit.

[toshi-minoura]

However, if you have worked on the California's Tax return before the Oregon's Tax return.  After working on the tax return for Oregon, it may be necessary to revisit the tax data from Oregon's tax return used by Schedule S.  A good way to find out which data need be revisited is to us e View >  Forms > Error of the Turbotax menu. Once you find the  errors, change to View > Step by Step and work on the items that may have caused the error.

As far as Turbotax 2021 is concerned, most of the data are automatically shared among Federal and  multiple State tax returns.