1040-US: Entering interest and dividend income for a multi-state return

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Question

How do I enter interest and dividend data and properly allocate the income to the state tax returns when processing multiple-state returns for a single client?

Answer

In the Interest and Dividend statement dialogs in Screen B&D you will find an F/S Code, State, and In-State Source % column. For more information on resident and nonresident processing, see the following:

Generally, you should leave the F/S and State fields blank when processing a resident return with one or more nonresident returns. If the income is not source-income on the nonresident return, leave the In-State Source % field blank (or enter 0.000). If the income is source-income on the nonresident return, enter 100.000 in the In-State Source % column. Note that resident state returns ignore any entry in the In-State Source % field.

It will sometimes be necessary for you to make multiple lines of data-entry for a single item of interest or dividend income. For example, if each state return requires a different In-State Muni % or amount, or In-State Source % ratio, make multiple lines of data entry, completing the State field with the appropriate two-letter postal code for each entry. Enter S in the F/S field for all of your duplicate state entries. (The S designates an item as State only this is necessary so that the item is not duplicated on the federal tax return). Finally, enter the line for the federal return. Designate this line for the federal return by entering F in the F/S field.

1040/Massachusetts Users Only: When making multiple lines of data entry for a payer, enter the S code in the F/S field on the line with the postal code of the other state. Do not enter the S code on the line that contains the MA postal code.

The taxpayer is a Maryland resident and is filing Indiana and California nonresident returns. Unless otherwise stated, all interest is non-source income on the nonresident tax returns.

Interest Income:

  • ABC Bank: $1,000.
  • US Savings Bond: $2,500.
  • DEF Ptnrshp: $800. Reported on Schedule K-1, the partnership operates solely in California, and the income is source-income on the California return.
  • XYZ Municipal Bond Fund: $750. The fund reports that 7.5 percent of the income is attributable to state of Maryland obligations, 12.75 percent California obligations, 0.00 percent Indiana obligations.

Enter the data in the Interest income statement dialog in Screen B&D (interest from a Schedule K-1 may be entered in the Interest statement dialog in Screen K1), as illustrated in the following table.

F/S Payer Interest Income Tax Exempt Amount US Ob $ or % In-State Muni $ or % In-State Source % State
ABC Bank $1,000
US Bond $2,500 100.000%
DEF Ptnrshp $800 100.000 CA
S XYZ Fund $750 7.500% MD
S XYZ Fund $750 12.750% CA
S XYZ Fund $750 IN
F XYZ Fund $750

For more information, see State - common data-entry questions.

Generally, make multiple lines of data entry for each item of interest or dividend income received. For example, if each state return requires a different In-State Muni % or In-State Source % ratio, make multiple lines of data entry, completing the State field with the appropriate two-letter postal code for each entry. In the In-State Source % field, enter a percentage if you want to allocate a portion of the income to the state indicated in the State field. Leave the In-State Source % field blank (or enter 100) to allocate 100 percent of the income to the state return. Enter 0 in the In-State Source % field if none of the income is source-income for the state return.

When making multiple lines of data-entry for a payer, enter S in the F/S field for all of the duplicate state entries. The S designates an item as State only. This is necessary so that the item will not be duplicated on the federal tax return. Finally, enter the line for the federal return. Designate this line for the federal return by entering F in the F/S field.

1040/Massachusetts Users Only: When making multiple lines of data entry for a payer, you must enter the S code in the F/S field on the line with the postal code of the other state. Do not enter code S on the line that contains the MA postal code.

Taxpayer lived 3 months in New York, and 9 months in Alabama.

Dividend Income:

  • ABC Stock: $5,000. All the income was earned while residing in New York.
  • Mutl Fund: ordinary income = $1,000, capital gain distribution = $500. The fund reports that 6.6 percent of the ordinary income is attributable to U.S. government obligations. Assume the income was earned at a constant rate throughout the year.

The data should be entered in the Dividend income statement dialog in Screen B&D as illustrated in the following table.

F/S Payer Ord Div Total CG US Ob $ or % In-St Src % State
ABC Stock $5,000 100.000 NY
S Mutl Fund $1,000 $500 6.600% 25.000 NY
S Mutl Fund $1,000 $500 6.600% 75.000 AL
F Mutl Fund $1,000 $500

For more information, see State - common data-entry questions.

Related topic: Multiple-state processing FAQs (1040)

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