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GOT STATES? DON'T FORGET YOUR CREDIT
April 11, 2007
Many taxpayers pay income taxes in more than one state. With the increased popularity of "pass-through" ownership of businesses through S corporations and limited liability companies, many taxpayers find themselves filing returns in two or more states. Others have taxes paid in other states by the businesses that they own through a "composite" return filed by their S corporation or partnership.
All states with an income tax have a system to keep their residents from paying full state taxes on the same income in more than one state. The credit for taxes paid in other states is computed on your resident state return; Iowans use Form 130. The credit is the lesser of the tax paid to the other state or the tax computed on the income in the home state.
If you are an Iowan who owns an S corporation, there is another alternative. You can compute an S corporation apportionment credit on Form 134. This credit can provide significant savings, especially for taxpayers whose S corporations retain a large part of their annual income.
And remember, in Iowa you can claim a credit for taxes paid in other states if you have foreign tax withheld. Many taxpayers have this through international mutual funds.
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The items included in the Tax Update Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation.
Joe Kristan writes the Tax Update items, and any opinions expressed or implied are not neccesarily shared by anyone else at Roth & Company, P.C. Address questions or comments on Tax Updates to
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