Virginia S-Corp with DC Sales

Forum|Forum|3 years ago
February 20, 2023
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I am a virginia resident and I am the owner of an s-corp with va and dc sales. The s-corp files a tax return for dc and virginia. I know that for most instances you pick up a credit for taxes paid in other states, but when I enter DC as the state it says "state code not valid for this credit." Does that mean that I pay taxes in virginia on all income for the corporation and only deduct the DC taxes paid? Or is there a way to exclude the dc income from the va 760 form.

Any advice would help. Thank you

ThomasM125

Since you are a resident of Virginia, you do not have to file a tax return in The District of Columbia, as they are reciprocal states. That means income you earn in the non-resident state is not taxable to you in that state and you don't need to complete a personal tax return to report the income. You can read more about it here: VA reciprocity

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jandj53114Author

If i make 200k in k1 income from the company with 50k appropriated to dc. The company pays dc tax on 50k. Then when i do my tax return i have a k1 of 200k which i would be paying taxes for in Virginia.

My question how do i remove the 50k dc income from va's k-1.

GeorgeM777

We need you to clarify some of your information. For example, the income that is taxed by the District of Columbia, is that all wage income? As mentioned previously, Virginia and DC have a tax reciprocity agreement, but it only relates to wages/salaries.

Are you the sole owner of the S-Corp? Because filing as an S-Corp is a tax election, what is the underlying business formation for your business, i.e., are you an LLC, or a partnership. Lastly, if you are an LLC, are you the only member/owner?

If your S Corp paid tax to DC, you don't "remove" the $50,000 from your K-1. Rather, if appropriate given your tax situation, you file a DC return and request a refund of the taxes paid to DC. Or, depending on your tax situation, you prepare your VA return and request a credit for taxes paid to DC on income that VA will also tax.

@jandj53114

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