Maryland Resident Tax on a PTE

[AGH]

Anyone know how to activate the entity level election to pay resident taxes on a MD PTE? I cannot activate lines 6b, 7, 8 and 9 on Maryland 510.

[dascpa]

ProSeries did a pretty good job on this one but they did miss an item.

First, make sure you report it on the Federal return as a state tax expense. Then on the MD return 510 Information Worksheet enter the payment as a 4th qtr estimated tax payment.  Next on the actual 510 check the box "Check here if electing to remit tax on resident member's share of income". This will generate the nonresident/resident tax paid on the Schedule K. Then the step ProSeries missed - also on the Schedule K line B(5) Other additions add a line for Resident Taxes Paid by the Entity and list the amount. This is done as it will be an addback to income on the MD K-1 and hence individual return. Finally (if needed) allocate the resident tax paid to the applicable members as a special allocation. This is only for the 1065 as you cannot do a special allocation on a 1120S.

[FarmerCPA]

I'm having a similar issue.  If we add the Resident Taxes Paid by the Entity back on Schedule K as an "Other Addition" on line B5, this will not adjust the state distributable income up by the amount of the state tax paid that was deducted on the federal return.  This will lead to a false limitation on the amount of deductible tax. 

For example, Client A has distributable income per the federal return of $80k.  $17k was paid in on 510D on the resident shareholders' behalf in December.  $80k shows as net distributable income, which limits the deduction to $6,400 ($80k x 8% = $6,400).  The net distributable income should be $97k, allowing a $7,760 deduction ($97k x 8% = $7,760).  

Thoughts?  

[dascpa]

I understand what you're saying.  However I don't believe it affects 2020, but your point would affect 2021.  Therefore it needs to be fixed.

Let's assume 1 stockholder. The Federal deduction is the actual $17,000 resident tax paid.  The Maryland deduction - there is none. We add back the $17,000 to the Federal income on the K-1's so the K-1 recipient reports the proper MD income on their own tax return. And as the full $17,000 passes to the K-1 recipient, 2020 has no issue.

This is the same as nonresident tax. It matters not what you paid, you get benefit for the greater of what you paid or the actual tax due.

But to your point, if the correct tax to have been paid was $7,760 and the 510 form shows $6,400 then next year when (if, like we do on individuals) we have to report the overpayment as a Federal income addition we cannot go by the $6,400 as shown on the 510. So I believe you are correct and we need to notify ProSeries @Orlando help!

[FarmerCPA]

I'm with you, thank you for taking the time to dissect.  Makes sense.  I was able to follow it through on a return and it seems to have been accounted for correctly.  Just seems like a lot of manual work that could be automated. 

Thank you again, I appreciate your help!