Filing a late California return (Non-resident)

[hotsawce]

Hi all,

I recently learned I was required to file a California return for a prior tax year (540 NR, as I was a non-resident.) I've completed and filed Federal and resident state returns in the year they were due, and currently have access to a software copy of Turbotax for the year I need to file.

Is there an easy way to complete and file just the California 540NR using the information from my completed Federal return (and identifying the California income source) without having to start the process from square one?

[Opus 17]

This is a bit of a mess.  The problem is that your home state will give you a credit for taxes you pay to CA, so that means you need to file a new original CA return, an amended home state return (unless you live in a state with no income tax), but do not need an amended federal return.

First, let's make sure you actually owe CA tax.  If your permanent home is in another state, you only need to file a CA return if you have CA-source income.  CA source income is generally 3 things.

1. If you are a W-2 worker, CA income is income from any days you physically work in CA, even if you are only there temporarily.

2. If you are a schedule C taxpayer (single member LLC or sole proprietor), income is CA-sourced if your clients are located in CA, even if you never set foot in the state.

3. Certain other income, like capital gains from selling property located in CA, or having rental income from CA property.  However, simply owning shares in companies that are located in CA is not CA-source income, nor are payments from a CA state pension, as long as you live outside the state.

CA might have sent a notice because they got a whiff of your involvement in the state, but that does not prove it is CA income.

If you agree you have CA income, the normal process is to prepare your federal return first, your CA non-resident return second, and your home state last.  CA only taxes CA-source income, and you have to manually allocate your income, Turbotax can't do it for you.  (For example, if you worked 2 weeks in CA on a W-2 employee job, then 2/52nd of your income, or 3.84%, is CA sourced.)  You prepare the home state last, so that the tax credits for out of state taxes compute properly.

So to start with, 

1. are you sure you have CA source income?

2. does your home state have an income tax?

3. do you have your data already in turbotax, or was your tax return filed some other way, so you are starting from scratch?

[hotsawce]

Thank you for your detailed response. I understand this is a mess and I wish this weren't the current situation.

1. I certainly have CA source income. I received income from a CA based S-Corp I'm a member of. The S-corp is multimember and it performs physical business in CA.I received a K-1, entered the K-1 information when filing taxes through Turbotax for the year, but I was not prompted to file a CA tax return. Perhaps I should have known better but I think this was something the online version missed and now I'm dealing with it.  FBT sent me a notice to file. Turbotax has provided me with a software version of the software for the year to get the return filed.

2. My home state (New York) does have income tax.

3. My return (Federal and NY state) was filed through Turbotax. I assume I'll have to import the .tax file into the software version - but I'm now finding they want me to pay for additional states (Thanks, Turbotax.)

[Opus 17]

@hotsawce 

First, if you are a passive investor, I'm not sure this is CA income just because the company is located there.  I want to ask for a second opinion. @TomD8 

Assuming it is CA income, this is what I expect should happen.  Open your Turbotax file (after saving a backup copy of the original in a safe place) and start the amending process.  Click to Add a State (California), you will need to pay for the California module since Turbotax includes "one free state" and you would have had to pay anyway if you filed with California originally.

You have no changes to make to the federal return.  Do California next.  Indicate you are a non-resident.  You would allocate 100% of the S-corp income to California, but zero percent of all your other income.  Once you finalize California, revisit NY and run through the interview steps.  You should see that New York will give you a partial credit for the California tax.  (The credit won't be more than the NY tax on the same income would have been.  So if the CA tax on the K-1 is $1000, and NY tax on the same income would have been $800, you will get an $800 credit on your NY return.)

The CA return will be an original, Turbotax should let you e-file it (if it is for the current season) or you can print it and mail it in.  The NY return should be handled as an amended return, and you should get a refund from NY.  NY allows e-filing amended returns.  Your federal return should not change, so you don't have to file it and you probably won't even be given the option.  

[Opus 17]

@hotsawce 

And lastly, because you are filing late (for 2023 or an earlier year), you should expect that after you pay your California tax, the state will send you a bill for interest, and possibly a late filing or late payment penalty.   You can request a one-time waiver of the penalty, so don't pay it without investigating the waiver.

https://www.ftb.ca.gov/pay/penalties-and-interest/one-time-penalty-abatement.html

In most cases, the interest can't be waived, but it should be recalculated if the penalty is removed. 

[hotsawce]

Thank you again for your response. This was very helpful. 

I was able to complete, and amend/update in line with your comments. Fed remained unchanged, the CA amount was calculated, and the credit was applied on NY taxes and everything looks good to file.

The only issue now - I went to state e-file, thinking I could finally get this resolved, and got the message

"Hi there, and thanks for visiting. State E-File in TurboTax is closed as of October 31, 2022, so we can get ready for the upcoming tax season.

See you then!
If you would like to purchase State E-File, contact (phone number removed)."

Customer support is not open on the weekend, but does anyone know if I'll be able to actually call/purchase/utilize e-file for the tax year (as NY accepts amends through efile and CA prefers returns through efile,) or am I going to have to print and mail these 😫

[Opus 17]

@hotsawce 

It looks like you have to print and mail, I did not realize this was for a prior year.  I think that tax professionals can access e-filing after the usual end of the season, and my memory from several years ago was that I could e-file an amended NY return past the October 15 limit, but maybe I remember it wrong.  You will need to print, sign and mail.  Be sure to include any required documents that might need to be attached (listed on the instruction page) and use a mailing service with tracking and proof of delivery just in case.

[hotsawce]

@Opus 17 Apologies for the questions, but I'm having some difficulty understanding/verifying the software (as I attempted the e-file prior to my previous post but am unsure what happened.)

On the web version of Turbotax, my 2021 returns show the following:

"Filed Federal Tax Return"

"Filed New York Tax Return."

On the software, under "Check e-file Status" it says:

"Your 2021 Federal Return Accepted"

"Your 2021 New York Amended Return Accepted"

Given the website doesn't say Amended, and I don't recall ever Amending prior to today, does this mean it went through with the software version? Or is it a potential glitch? If open the original .tax file, New York says accepted (but not Amended.)

Regarding California I did the print option with instructions and it says I can still e-file. It says the following:

"You can still file electronically. Just go back to TurboTax, select | the File tab, then select the E-file category. We'll walk you through the process. Once you file, we will let you know if your return is accepted (or rejected) by the state taxing agency."

So I am unsure if I really can still e-file (if I call customer support to purchase the option) or if the software is just bugging out all around because it's old?

[Opus 17]

I don't know about the desktop version and the "amended accepted" issue, that's clearly a glitch.

As far as the California e-file, you're getting conflicting messages because the program is not smart, or the programmers did not think of this situation.  Any time you select print and mail the software will remind you "Hey, don't you really want to e-file?" because the program wants you to e-file.  But if you try it, you will go back to the "It's after 10/15/22" message.  You just need to print and mail both returns.