S Corp Partner in Partnership with Multi-State K-1s - Urgent Filing Question!

Thx for this explanation. Quick question though - what if some of those states have really minimal income amounts? Like if one state only shows $300 of income on the K-1, is it still worth filing there? Are there minimum thresholds?

Many states do have filing thresholds based on income earned in the state, so you might be able to avoid filing in states with minimal activity. These thresholds vary widely by state - some might be as low as $1,000 while others could be higher. Even if you're below the threshold for an individual return, the S corporation itself might still have filing requirements regardless of the amount. Some states require an informational return even if no tax is due. I'd recommend checking each specific state's requirements or using a multi-state tax software that will flag the thresholds for you.

That sounds interesting. How accurate is it though? I'm nervous about software making those kinds of determinations since states can be so particular about their filing requirements.

Does it also help with figuring out how to allocate the income between states on the client's personal return? That's always the part that trips me up with pass-through entities.

It's been extremely accurate in my experience. The system is actually updated with each state's current regulations and filing thresholds. My accountant double-checked the recommendations against her own research and confirmed everything was correct. It saved us from unnecessarily filing in two states where we were well below the thresholds. For allocation questions, yes it absolutely helps with that too. It breaks down exactly how much income needs to be reported to each state and even calculates the tax credits for taxes paid to other states that you can claim on your home state return. That was honestly the most valuable part because those calculations get incredibly complicated with multi-tiered pass-through entities.

Wait, I'm confused. Is this just paying someone to wait on hold for you? How does that even work? Doesn't seem like it would actually get you through any faster than waiting yourself.

Sounds like a scam to me. No way they have special access to tax departments that regular people don't. The IRS and state tax departments are notoriously understaffed and everyone has to wait in the same queue.

It's not someone waiting on hold for you - it's an automated system that navigates the phone trees and waits in the queue. When they reach a live person, you get a call connecting you directly to that agent. You don't have to sit there listening to the hold music for hours. The service doesn't have "special access" - they're just using technology to handle the waiting part. They call using the same number everyone else uses, but their system can handle hundreds of calls simultaneously and just connects you when one gets through. It's especially helpful for state tax departments where wait times are unpredictable and can literally be 2-3 hours during filing season.

Is that true even if the S-corp doesn't have any physical presence in California? Just getting a K-1 from a partnership that does business there is enough to trigger the franchise tax?

Yes, unfortunately. California considers having income sourced to the state (even through a partnership) as creating nexus. So if your S corp is a partner in a partnership doing business in California, the S corp generally has to pay the $800 minimum franchise tax, even without physical presence there. It's particularly painful if your client is a small S corp that only invested a small amount in a larger partnership. Some states are more aggressive than others about this, but California is definitely one of the strictest.

We did this last year for a similar situation in NY, CT and CA - all three have PTE elections that worked well. Big benefit was getting around the $10k SALT deduction limit on the owner's 1040. But you have to be careful about timing - some states require you to make the election before the tax year ends.