The answer to your question is a little complicated, but still certainly manageable. Because you are beneficiaries of a Utah Trust (and received a Utah TC-41 Schedule K-1), you will need to report this income on a Utah state tax return. As you are residents of Idaho, this Utah return will be a nonresident state tax return.
But, as residents of Idaho, you will also need to report this very same income on your Idaho state tax return, as Idaho taxes the worldwide income of its residents, no matter where they go or the source of the income.
Thus, you are taxed on the same Trust income by both Utah and Idaho. This is an identical situation that would occur if you, as Idaho state residents, were to take jobs and work in Utah as nonresidents, receiving taxable wage income. The only difference here is that we are discussing Trust income, and not W-2 wage income.
However, the relief process from the double taxable (also called mutually-taxed income) issue still has the same solution. Once you complete your Utah and Idaho state tax returns, you will be able to claim a state taxes paid credit on your Idaho return for taxes paid to Utah. This will eliminate (or at least mitigate) the double-taxation burden.
In TurboTax, it is vitally important that you complete your tax returns
in the correct order, or otherwise the state taxes paid credit may not
calculate properly. That completion order is as follows:
1) Do your federal tax return and have it pass an error check
2) Do your nonresident state (Utah) second, and finish it completely
3) Do your resident state (Idaho) last, and only after following the completion of the first two tax returns.
Finally, you may benefit by viewing the following two TurboTax
webpages, which contain many more details on mutually-taxed income:
https://turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/Multiple-States---Where-T...
https://turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/Multiple-States---Figurin...
Thank you for asking this important question.
