Question

how to avoid being double taxed from 2 different states

Forum|Forum|3 years ago
April 7, 2023
2 replies
0 views

We recieved $100,000 from an inherited ira that was cashed in from Michigan estate. we live and work in Oregon. How do we avoid paying taxes on that amount to both states?

TurboTax Home & Biz Windows

B

BillM223

Leaving aside the issue of whether or not you would owe tax in either Michigan or Oregon, let me address the common issue of apparent double taxation.

It is common for states to give credits to a taxpayer for an amount equal to taxes paid in another state on the same income. In your case, if you owed tax in both states, then you would enter your nonresident state (Michigan) first, then enter your resident state (Oregon).

TurboTax would calculate the tax (if any) from Michigan, and then bring this amount over to Schedule OR-ASC, Schedule E as a nonrefundable credit to Oregon. Thus, you would pay tax (if any) on this income to one state or the other.

This method of avoiding double taxation is fairly common among the states.

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Hal_Al

Employee

What makes you think that is taxable by MI?

Were you the beneficiary of the IRA or was the estate the beneficiary and is now making an estate distribution to you?

N

neoldthingAuthor

the estate issued a K-1 to each of the beneficiaries and said "enclosed is your 2022 Michigan Beneficiary's Information" which has been filed with the 2022 MI-1041 Michigan Fidiuciary Income Tax return of the person's Trust. That is what lead me to believe that I would have to also file in Michigan.

Hal_Al

Employee

I'm not specifically familiar with Michigan. But, in most states, you would not pay state tax to the state where the estate is. The estate is a MI taxpayer (and filed form MI-1041), but you are not. Distributions from estates and IRA custodians located in another state (e.g. MI) are not considered MI source income to a non resident.

I don't think you need to file a MI tax return.

See page 6 of the MI instructions for examples of MI source income. https://www.michigan.gov/taxes/-/media/Project/Websites/taxes/Forms/2022/2022-IIT-Forms/BOOK_MI-1040.pdf?rev=86a928564e3f42449c531309673f5da7&hash=7147C48E7C9B1B8171B72DC34A66642A