client resident in two states - how to show in Lacerte

[1040tax]

Hello,

I have a client that is domiciled in AZ yet spent over 183 days (and had a permanent place of abode for >11 months) in 2019 in NY. Per ARS 43-102, the client is considered to be resident in AZ due to the domicile, yet is also a resident in NY (per TB-IT-690).

Therefore we need to file resident returns in both states, yet Lacerte only allows me to select one state as state of residence, and produces a NR or part-year form for the other state.

How do I get Lacerte to produce resident returns for both states?

[CharlotteEA]

He would be considered a part year resident in each state. In the client info screen make sure you have both states and click the Multi-State Return. Remember your rep access. Under state and local tab choose 55 and enter the dates. Remember to identify all entries to the proper state.

[1040taxsolutions]

Thanks for your answer, but I disagree. Both states consider the taxpayer a full year resident. NY because he spent practically the whole year there, and AZ because of his domicile (even though he had very little physical presence).

Thus, there are no 'dates' to enter, and he is not a part year resident!

[baorleans]

Did you receive your answer?  I have the same issue and can't seem to find out how to handle.  You are 100% correct, taxpayer must be classified as a resident of both states.

[1040tax]

No. Sadly I didn't find a method. I had to do it manually, i.e. prepare one return, file, then do the other state separately.

Ridiculous

[Taxcoach]

Hi,

I'm in the exact same situation now and wondering if there's an update to this thread, or if the answer is still to prepare one return, file and then prepare the other one? That seems like a huge problem that Lacerte should address.

[BobKamman]

When all else fails, read the Instructions.

Form 309, Page 2, "Dual Resident"

[Taxcoach]

While I appreciate the attempt to help, I don't appreciate the snarky response. I am not filing an AZ return. I was looking for some friendly colleague help in a general sense, but I'll figure it out.

[1040tax]

I have read the instructions, but they obviously do not explain how to set Lacerte to allow two resident returns.

the question was how to set this up in Lacerte. It was not how to calculate the AZ tax manually.

[Taxcoach]

Thank you for your proper response & feedback. That's exactly my issue. I read the state instructions, but my issue was how to get Lacerte to do it. I couldn't figure it out and was hoping someone had the answer. Thank you for commiserating.

[ScottM]

I'm also in this boat.  No amount of tinkering with "Client Info" tab and "Part-Year/Nonresident Info" tabs seems to get the result of full-year residency in 2 states.  In my case, client is domiciled in CA (with home & intent to return) but has a job (interim pastor) for at least a few years in Idaho, and has moved there and is renting.  Both CA (domicile) & ID (>270 days) will claim him as full-year resident.

So is it really Lacerte's position that I should file a Federal & State return under one 'client' ID, then copy to another client ID and produce a copy 'dummy' Federal return so I can generate a normal return on the other state?  That seems beyond clunky and like it would make a mess of income sources with differing source states.

If this is right, then I'd produce the following??

CLNTID01 = Fed + CA = W2 (CA), W2 (US), 1099-R (CA), 1099-R (CA), 1099-SSA (CA)

CLNTID02 = Fed + ID = W2 (US), W2 (ID), 1099-R (US), 1099-R (US), 1099-SSA (US)

I'll also have to manually override the "other state tax credit" on the "St. Taxes" tab to get it to populate?

Sounds like a good one for the feature dev queue. 

From a user experience perspective, this is tough (even if I get all the manual parts right).  This has implications for eSignature.  For printing & assembling.  For making PDF's.  For linking to SmartVault (or Doc mgmt something something).  For proforma to next year.  For organizers.  Any adjustment to one Federal needs to be replicated manually on the other.  Every step needs deeper focus.  And this will last for each year my client is in this situation.  Given how states are more concerned about claiming income, and how remote work has increased, these situations won't become more rare.

Ugh.  So, if anyone has a magic bullet on how to handle this I'm all ears.  Please consider this is my nomination for escalating "dual-residency capability" in the dev queue.

[George4Tacks]

Each state has their own rules on residency for tax purposes.

AZ https://azdor.gov/sites/default/files/PROCEDURES_INDIV_1992_itp92-1.pdf

CA https://www.ftb.ca.gov/forms/2020/2020-1031-publication.pdf

etc. If you are physically out of the state for the given period, you are no longer a resident of that state. I think the CA publication has some excellent examples and they likely translate to other state rules. I find it hard to believe that some is (for tax purposes) a resident of two states. 

[PhoebeRoberts]

It's pretty easy to be a tax resident of two states. You just need one to be a domicile state and one to be a days-of-presence state.

Heck, I had a 1041 that was resident in two states (and yes, California was one of them). Two Lacerte files was the only workaround, and if it had multi-state income it seems like I had to use a third Lacerte file and swap pages to get it printed right. No e-file for me!

[VACPA1]

This may be more than you need ... but I found this MA letter ruling see below)  Client is NM domiciliary resident and a statutory resident of MA (spent more than 183 days there). 2020 issue.  He paid full resident tax in NM, but he got a credit for this NM tax on the MA return.  I attached this letter ruling and lots of documentation to both.  On Screen 55.251, I coded taxpayers as residents of NM.  Coded as a full year MA resident on screen 1.  I completed Screen OTC for MA with double-taxed income for NM (all of it broken down into categories with the corresponding allocable tax paid to NM.   No notices received.  Returns accepted as e-filed).  Not sure this works with other states ... but with trial and error, I got it to work.   

This is the LTR Ruling Info: In administering this provision, Massachusetts has announced its commitment to the uniform approach meaning in general, that (1) income is to be taxed where it is sourced; (2) income that is untaxed by the sourcing state, or that is unsourced, i.e., investment income, may be taxed by the state of domicile or the state of statutory residence, with the state of domicile preferred. Accordingly, with respect to unsourced income, if the state of domicile taxes the income, MA as the state of statutory residence should give the taxpayer a credit for taxes paid to the state of domicile. Mass. Gen. Laws Ch 62 § 6(a); Mass. Letter Ruling No. 08-11, 07/07/2008.

And for those you don't believe in "dual residency" ... Google it.  Lots of articles.  Client's don't believe it, but its a real thing.  

[Taxcoach]

You're absolutely correct in terms of how Lacerte expects us to handle it, how clunky it is and how it impacts so many different things. I cannot believe they haven't programmed the software to handle dual residents. Makes no sense! In my case, I had to forgo filing the dual resident state and instead file a full year resident + full year non resident. I was not about to go through all those steps and sadly I'd probably do the same thing again.

[Taxcoach]

You are 100% correct. There's no question you can be a dual resident and the person who responded to this thread saying otherwise is unquestionably wrong. 

[ScottM]

Yep.  This is the exact situation.  Domiciled in CA, with an absolute intent to return, working in ID enough days to meet ID's residency determination, but not working long enough for CA's safe harbor (needs 1.5 years - doesn't help in the first year...).

[ScottM]

Thanks for the reply.  I may need to do the same thing.  What I might do is file ID as full resident and CA as non-resident, anticipating that by next year there will be enough days accumulated for the safe harbor to take effect.  And inform the client not to come back to visit too much!

[ScottM]

Thanks for the reply and the links. 

The client is CA resident by domicile (clear intent to return to primary home after job assignment is completed in ?? months/years), and ID resident by days-in-state.

My client *might* qualify for the safe harbor next year (needs 1.5 years out of state with less than 45 days visiting CA), so I think my best bet may be to file CA as non-resident anticipating that this will be the correct status by mid-2022, and advise the client not to exceed the 45 day limit returning to CA in any given year.

But from a program perspective, I'd rather not have to rely on the safe harbor.  Filing dual-residency isn't that much of a burden since there would be a state tax credit to wash-out any double-taxation.  But I'm not sure this is the year I want to be submitting returns on paper just to take the most prudent approach.