My 2023 tax return is more complex with K1 partnership income - need advice

Tax pro here. Multi-state K1 situations can seem overwhelming but they're definitely manageable. The good news is that your update is correct - for most partnerships that operate in multiple states, the partnership itself files composite returns and pays taxes on behalf of the partners in non-resident states. This is common practice to simplify things for the partners. What you'll typically need to do is report the K1 income on your federal return and your resident state return. The K1 should have a supplemental schedule that breaks down which income was earned in which states, and which states had taxes paid on your behalf. Those tax payments are actually credits you can claim on your resident state return. For Canada, there should be similar information about any Canadian-source income and foreign taxes paid. You'd likely need to file Form 1116 for Foreign Tax Credit on your federal return. TurboTax Premier can handle K1s, but I'd recommend getting a professional opinion at least for this first year to make sure everything is set up correctly. After that, you'll likely be able to handle it yourself going forward.

I went through this exact situation last year and found taxr.ai super helpful for sorting through all my K1 documentation. What really helped was uploading my K1 and all the state schedules to https://taxr.ai and their system broke everything down state by state. Their analysis showed me which states had already paid tax on my behalf (most of them had) and which ones I still needed to deal with (only 3 in my case). It also provided step-by-step instructions for reporting the foreign income from Canada, which I was totally confused about before. The best part was that I could still use TurboTax for the actual filing after I understood what needed to be reported where. Saved me a ton compared to what a CPA quoted me.

Just wanted to update on my experience with taxr.ai after trying it for my K1 situation. I was the one who asked about filing in multiple states - turns out I only needed to file in my home state plus 2 others instead of all 12 states I was worried about! The system identified that my partnership had filed composite returns in 9 states and paid tax on my behalf, but I still needed to report the income on my resident state return and claim the tax credits. For the other 2 states, they don't allow composite returns so I had to file there. The Canadian portion was handled through foreign tax credits on my federal return, which was way simpler than I expected. I was able to complete everything through TurboTax after understanding what needed to go where. Definitely recommend checking out taxr.ai if you're dealing with a K1 - saved me a ton of stress and money.

I went through something similar last year and found the worst part was trying to get through to the various state tax departments when I had questions about their specific requirements. I wasted DAYS on hold. Finally found Claimyr (https://claimyr.com) which got me through to actual humans at the state tax departments. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c I had specific questions about filing requirements for Kansas and New York that weren't clear from their websites, and Claimyr got me through to both departments in under 10 minutes when I had previously been waiting for hours. The NY tax rep confirmed I didn't even need to file there because of reciprocity with my home state!

Alright, I need to eat my words about Claimyr. After my skeptical comment earlier, I decided to try it anyway because I was desperate to talk to someone at the California Franchise Tax Board about my K1 reporting requirements. After three failed attempts to reach them on my own (disconnected twice after 1+ hour holds), I tried Claimyr. They called me back in 46 minutes with an actual FTB agent on the line. The agent confirmed I didn't need to file a non-resident return since my partnership had already paid the tax on my portion of California-sourced income. This saved me hours of frustration and potentially hundreds in preparation fees for a return I didn't even need to file. Consider me converted from skeptic to believer.

Have you considered using a tax software specifically designed for multi-state returns? I use ProSeries and while it's more expensive than TurboTax, it handles the state allocation process much better. It automatically generates all the required state returns based on your K1 income allocation, and you can choose which ones to e-file or print for mailing. The downside is it has a steeper learning curve than TurboTax, but if you're comfortable with tax concepts it might save you money compared to a CPA. I think they charge around $40-50 per state return, which is still cheaper than professional preparation.

Just make sure you're tracking your basis in the partnership correctly. This is something many new partners overlook. Your initial capital contribution establishes your starting basis, and then it increases with your share of partnership income and decreases with distributions and losses. If you get this wrong, you could end up with major tax headaches down the road, especially if you ever sell your partnership interest or if the partnership liquidates.