State Tax Filing Headache : Work in one state. Drivers License in another

[mustangboss]

Alright folks, so here is the situation...

I work in MN and I reside there roughly about half of the year, the remainder is in Iowa.

In prior years I have done my filing thru the State of MN, I thought I would change it this year because of my dads house, the LLC, and well it just made sense.  However, when I did this, right away it said I owed over 8K in taxes.    When I went back to change my residency to partial, it was changed to zero.

My paystub reflects state of MN.

I have a drivers license in Iowa

I have an established LLC in Iowa

I am helping my dad with his mortgage for his house and am a co-borrrower on that in Iowa.

My questions----

1.  How should I be filing?

2.  Why did the system say my balance was over 8k in the negative? 

3.  How should I fix this?  Should I have been reporting my taxes differently in past filings?

Thank you!

[Vanessa A]

1) You will need to file a part year return for both MN and Iowa, if you live in both states for part of the year.

2) It was most likely because you had income then being reported for both states but you did not have taxes withheld for those states.  If you are a full year resident of Iowa, then all of your income from both states for the entire year is taxable in Iowa.  If you are a part year resident, then the income earned during that time is taxable.  If you maintain an LLC in Iowa and that LLC makes money throughout the year in Iowa, that money is all taxable to Iowa as it is Iowa sourced income. 

3) Paying the mortgage on your dad's house and being a co-borrower does not make you a resident of that state. If you have 2 houses, one in each state, you are a part year resident of both states.  If that has been the case in past years, and you filed part year residency for both states, then there is nothing you need to change. 

[mustangboss]

Just to clarify, I currently live in MN with a friend, I help her with rent, but am not on the lease.

Also, in years past, I have only filed with MN.

Do I need to correct prior filings?   

The LLC is still in its starting phase and has not generated income yet.

I wouldn't say I am part year resident, as I am nearly in MN as much as I am in Iowa, because I go back to Iowa frequently, I just work Monday thru Friday ( mostly, in MN) .      Sorry, for all the questions, but how do I correct this and do I file for both?

[Vanessa A]

It sounds like your stay with your friend is nothing more than like if you were renting a hotel room for work while traveling?

If you are only staying in MN for work during the work week, but actually live in Iowa, then you should be filing an Iowa Resident Return and a Minnesota Non-Resident return.  

If this has been the situation, then you will need to go back and amend your MN returns to a non-resident return and file for the first time your Iowa returns if you haven't filed any yet. 

To do this if you used TurboTax you will need to follow these instructions to Amend Your Return .  You will not need to change anything on your federal return, just add a state and amend the other state. 

[mustangboss]

Vanessa, thank you so much for your help.    Just so we are clear, I am in Iowa and Minnesota almost equally as much.   Also, is it a problem that my w2 , at the bottom, reflects state information for MN?  At one point, the address I gave work was my Iowa address, since the change, they have been giving me the MN data at bottom of w2 for tax reporting.

Sorry for all the questions

[ThomasM125]

@mustangboss Your resident state is where you original lived and claimed as such and the state you plan on returning to if you are away temporarily. Also, you need to factor in other things such as where you live, work, have a driver's license and own property. It seems you have equally qualifying criteria to claim either state as your resident state. I suggest you pick one over the other and get a drivers license in that state as documentary evidence of your residency there.

When you file your tax return, you should get a credit on the tax return in your resident state for taxes paid on the same income to the other state. That should prevent you from being doubled taxed on the same income.