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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
Category: Tax
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Experience:  10 years experience
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I have a client who is a partner in a hotel in Texas. They

Customer Question

I have a client who is a partner in a hotel in Texas. They receive a Federal K-1 but not state K-1 because it is texas and no income tax. The live in California. Their previous accountant adjusted the income from the partnership to 0 on the California tax return. I am thinking that the income should be taxes in California because that's is where the partner lives. Is this correct or should it be adjusted to 0 since there is no income tax in texas? Thanks.
Submitted: 9 months ago.
Category: Tax
Expert:  ABC Accounting Group replied 9 months ago.

Great Question. You are correct. I would use the Federal K-1. Best Regards.

Expert:  ABC Accounting Group replied 9 months ago.

If you have any questions, let me know. Have a great day.

Customer: replied 9 months ago.
Was looking for a little more of an explanation
Expert:  ABC Accounting Group replied 9 months ago.

Hi. First, I would check with the previous accountant as to why he adjusted the income to -0-. However, it appears from the information provided, that the previous accountant did not include the partnership income on the California State 540 Form - just confirming, so I can give more detail in the answer.

Expert:  ABC Accounting Group replied 9 months ago.

I want to make sure we are talking about the personal income tax return for California.

Expert:  ABC Accounting Group replied 9 months ago.

All I am sure of - a California resident pays California income tax on all of his/her income, even if that income comes from outside of California. Hope this helps.

Expert:  ABC Accounting Group replied 9 months ago.

Here, for your reference, is the California Ruling # for this- [Cal. Rev. & Tax Code § 17041(a)].

I cannot give reasoning to why the previous accountant had an adjustment - it would be best to go back with him - he may have some additional facts about the partnership, that I do not have knowledge of. Above all, if you have any questions, let me know.

Expert:  ABC Accounting Group replied 9 months ago.

*to him

Customer: replied 9 months ago.
I talking about the California 540. I will try and talk to the other accountant. It shouldn't make a difference that the income was earned in a state where there is no income tax, correct?
Expert:  ABC Accounting Group replied 9 months ago.

Correct. If he resided in Texas and had a business in Texas, then it would be no tax. Maybe, the accountant got confused with the states for some reason.

Expert:  ABC Accounting Group replied 9 months ago.

Hi. You can accept the answer - there is no extra charge and I get credit. Thank you. Have a great night.