I need to file Metropolitan Commuter Transportation Mobility Tax (MCTMT) as a self-employed individual filing schedule C. I am little confused where to enter the estimated MCTMT tax paid. Do I include this amount under the NY state estimated tax paid (since we pay this MCTMT estimated tax the same way as other personal NYS estimated tax in 2016) or as someone suggested before, separate this part and enter this under business expense, in the category "Taxes and Licenses"?
There is quite a bit of disagreement on this in the professional tax community. Good discussion at the following link:
https://www.taxprotalk.com/forums/viewtopic.php?f=8&t=5825
Basically, one good argument is that a tax on gross income could be deducted as a business expense on Schedule C, but this is a tax on net income, so must be deducted on Schedule A. Here is a counterargument that it can be deducted on Schedule c:
https://www.natptax.com/Chapters/Documents/2015ny-newsletter-may.pdf
I doubt you would be challenged by the IRS if you took it as a Schedule C deduction (it would be more beneficial to you, because it would lower self-employment tax that way), but it seems clear that NY state will not allow it as a Schedule C deduction:
"The MCTMT is not deductible in determining entire net income for purpose of the New York State and City corporate income taxes, the New York City unincorporated business tax, or the New York State and New York City personal income taxes."
There is quite a bit of disagreement on this in the professional tax community. Good discussion at the following link:
https://www.taxprotalk.com/forums/viewtopic.php?f=8&t=5825
Basically, one good argument is that a tax on gross income could be deducted as a business expense on Schedule C, but this is a tax on net income, so must be deducted on Schedule A. Here is a counterargument that it can be deducted on Schedule c:
https://www.natptax.com/Chapters/Documents/2015ny-newsletter-may.pdf
I doubt you would be challenged by the IRS if you took it as a Schedule C deduction (it would be more beneficial to you, because it would lower self-employment tax that way), but it seems clear that NY state will not allow it as a Schedule C deduction:
"The MCTMT is not deductible in determining entire net income for purpose of the New York State and City corporate income taxes, the New York City unincorporated business tax, or the New York State and New York City personal income taxes."
The MCTMT is defined, by NYS, as "a tax imposed on certain employers and self-employed individuals engaging in business within the metropolitan commuter transportation district (MCTD)". Some employers (depending on amount of payroll), including partnerships,, must pay MCTMT on their employees, this is generally done through your business.
Self-employed individuals and partners that over $50k in Self Employment income must also pay the MCTMT. If you have to pay the MCTMT, you have to pay quarterly with your other state estimated taxes on form IT-2105.
Whether or not your personal MCTMT taxes paid are deductible on your federal tax return is a question for accountants and lawyers. To me, deducting on Schedule C or K-1 doesn't make sense since the self-employment portion of the MCTMT is a personal tax, not a business tax.
How about deducting it on 1040 Schedule A? The IRS, in their instructions for schedule A line 5, say that you cannot deduct "Certain state and local taxes, including tax on gasoline, car inspection fees, assessments for sidewalks or other improvements to your property, tax you paid for someone else, and license fees (for example, marriage, driver's, and pet)." While this leaves an opening for them to reject the MCTMT, truth is, it doesn't matter much. For most people, the deduction would make a nominal difference to your federal taxes, and will likely be be reduced or eliminated in 2018 anyway.
However, most importantly, you cannot put your MCTMT estimated taxes into Schedule A using TurboTax. If you do, you'll essentially be claiming those estimated taxes twice.
1. They'll show up in your MCTMT wkst, and be credited against the MCTMT you owe.
2. They'll show up again in IT-201 line 75 (estimated tax payments) which flows from Schedule A.
Other answers talk about Schedule C vs Sched A, but maybe more broadly on on the 'how do I get through this on Turbotax" point:
I see it as a cost to the business so putting the expense on Schedule C is proper. I have always included MCMT (and another NYC local business tax, UBT) on the Schedule C line "Taxes and Licenses".
However - note that while the IRS allows you to count these local taxes as a cost to the business, NYS wants you to be more specific about how you claim them. So early in the process of doing the NYS return in TurboTax, there's a place to add those numbers back in. Then, when you get deeper in the NYS return, you enter in the estimated amounts paid, and you get the credit.