Tax Prep by Deb Posted January 5 Report Posted January 5 I have a question. I have a client who formed a S-Corp in California several years ago and worked exclusively in California as well as lived in California. A couple of years ago client and all the other shareholders moved to Oklahoma. Shareholder #1 does go back and for from Oklahoma and California, however shareholder #2 is strictly in Oklahoma and only does administrative duties from home in Oklahoma. Shareholder #3 also lives in Oklahoma and does nothing towards the corporation. Shareholder 1 and 2 are employees of the corp and receive W-2's. Which state should withholding be taking out, California, Oklahoma or both? When it comes to their personal taxes both states are wanting paid, California because that is where the business is located, and Oklahoma because that is where they are residents. Any thoughts would be greatly appreciated. Quote
BulldogTom Posted January 5 Report Posted January 5 California taxes the location of the benefit of the work to the business. The employee location determines who taxes the wages. Where does the income for the Scorp come from? If the client or the work is in CA, then your K1 income to each shareholder is CA sourced and taxable to CA. If only a portion of the work is in CA or for CA clients, then the Scorp should apportion the K1. Where did the business employees work? If they worked in both CA and OK, then they apportion their wages on the W2 and pay accordingly. If they exclusively worked in 1 state, the W2 should reflect that. Shareholder 1. Some or all K-1 Income is CA sourced. Some or all of the W2 income is CA sourced depending on how much work is done in CA. Need to apportion on the W2. Shareholder 2. Some or all K-1 income is CA sourced. All W2 income is OK sourced. Shareholder 3. Some or all K-1 income is CA sourced. Hope this helps. Tom Longview, TX 1 Quote
BulldogTom Posted January 5 Report Posted January 5 I should say also that if the corp is not registered to do business in any other state, all income is CA sourced. Tom Longview, TX 3 Quote
Tax Prep by Deb Posted January 5 Author Report Posted January 5 Only in California and all work done in California. How do you apportionment? Based on hrs? Days in Ca verses Oklahoma? 1 Quote
jklcpa Posted January 6 Report Posted January 6 I'm confused by this and Tom's answers about the W2 proration as well. I don't do CA returns, but I thought CA was a stickler for any out of state person working remotely for a CA based business doing business in CA to tax all of those wages regardless of where the employee was located. Has something changed with that? My original answer about the K-1 income was going to be that all income on the K-1 is taxable to each of the 3 shareholders as CA source income and taxable there with those people claiming a credit on their OK resident personal returns for taxes paid to CA. 2 Quote
BulldogTom Posted January 6 Report Posted January 6 18 hours ago, Tax Prep by Deb said: Only in California and all work done in California. How do you apportionment? Based on hrs? Days in Ca verses Oklahoma? Reasonable method. If no good records, then CA may assert all CA income. Facts and circumstances. Tom Longview, TX 1 Quote
BulldogTom Posted January 6 Report Posted January 6 12 hours ago, jklcpa said: I'm confused by this and Tom's answers about the W2 proration as well. I don't do CA returns, but I thought CA was a stickler for any out of state person working remotely for a CA based business doing business in CA to tax all of those wages regardless of where the employee was located. Has something changed with that? Nothing has changed. If you are not a CA resident, you only pay tax on the wages you earn while working in the state. CA is a stickler on the proof that you are working outside the state. Example, my spouse is my employee. I do a lot of CA tax returns from TX. All my CA clients are CA sourced income to my business. I file a NR tax return an pay taxes on the profits from those clients. However, my spouse works exclusively out of my TX home office on CA client returns. None of her W2 income is taxed by CA. Tom Longview, TX 2 Quote
jklcpa Posted January 6 Report Posted January 6 Tom, thanks for clarifying. Maybe I should think about retiring. 2 1 Quote
BulldogTom Posted January 6 Report Posted January 6 2 hours ago, jklcpa said: Tom, thanks for clarifying. Maybe I should think about retiring. You go I follow. We need you here. Tom Longview, TX 3 Quote
Recommended Posts
Join the conversation
You can post now and register later. If you have an account, sign in now to post with your account.