My LLC has income and expenses in 2 States

[wdegaude]

Hello!

I have finished the Federal 1120-S

I have created 2 mock Federal, splitting income and expenses for each state.

Both states require to attach the Federal Return.

Am I OK doing my state taxes this way or am I creating a potential tax audit and nightmare?

In addition New York requires to file electronically but the software attaches the Federal Mock Return to the NY State tax return.

Please advise. Thank you! 

[Mike9241 · Accepted solution]

when there is multistate business operations states have rules for dividing the net income

some use a 1-factor formula - sales in each state 

others use a 2-factor formula - usually sales and either wages or the cost basis of property and equipment

others use a 3-factor formula - sales, wages, and property

some states that have a multi-factor formula give twice the weight to sales as the other factors

under these rules it is possible that the US return shows $100 of profit but the total of the state returns is more or less than the $100

another issue is whether you really have multistate sales. normally to be taxed their must be "nexus" (a connection) to the state 

in it's simplest some sort of presence in the state. state laws vary greatly on this

examples:

storing inventory in the state creates nexus

have a salesperson make sales calls in a state. while calling on a phone from a different state does not create nexus

manufacturing facilities in a sate 

even where the title transfers from the seller to the buyer.

each state should have tax forms that guide you through the allocation.

just one federal return that shows it all the state returns with the income allocation form

in my state for an 1120-S it uses only in-state sales to total sales 

the rules are basically the same regardless of te type of business.

[wdegaude · Accepted solution]

Thank you so much for your response.

However, it is a S-Corp where the income and loses flow to the owners.

If there is a state tax for NY or SC, the software should calculate it.

There is a $19 from NY State and $25 from SC.

We move the offices from SC to NY in June 2021.

How shall we split income and expenses. I was told by one of your colleagues

to report the income earned in each state and the expenses in each.

Is the last statement correct?

If not, how?

Thanks again!

[wdegaude]

Forgot to mention our activity: Consulting!

[wdegaude]

I believe that my original question was incomplete.

Here it goes again:

I am using an LLC registered in SC for my consulting practice that has just one client in SC.

It is a S-Corp where the income and loses flow to the owners.

We move the offices from SC to NY in June 2021.

I have finished the Federal 1120-S

How shall we split income and expenses for each State. I was told by one of your colleagues

to report the income earned in each state and the expenses in each.

Is the last statement correct?

If not, how?

The software calculates that the LLC has to pay $19 to NY State and $25 to SC.

I have created 2 mock Federal, splitting income and expenses for each state.

Both states require to attach the Federal Return.

Am I OK doing my state taxes this way or am I creating a potential tax audit and nightmare?

In addition New York requires to file electronically but the software attaches the Federal Mock Return to the NY State tax return.

Your help is appreciated. Thank you!

[RobertB4444]

@wdegaude  You will create two part-year returns, one for SC for all the days up until you moved and one for New York for after you moved to the end of the year.  On each return the system will ask you to allocate your income between the two states.  You will tell it all of the SOuth Carolina income belongs to SC and the same for NY.  The system will calculate the taxes.