What's the proper way of dividing income/deductions wages between two states?

Question

I started 2014 living in WA and working there. Starting on March 15 2014 I got a new job in CA and started working there. However for about three more month my family was still living in WA and was flying home every weekend. We finally sold the house and moved to CA in end of June 2014. When I'm enter our move date to Turbo Tax it calculates that we were CA residents for 189 days in 2014. If I enter March 15 as a date of my (not my wife's) enter to CA - I get 290 days.

What ration should I use when calculating what portion of income/deductions is assigned to CA? 189/365 or 290/365?

I have not only W2 income, but also real estate tax deductions, and income from K1 (from the LLC I'm one of two members) so it's not that obvious straight to me.

Answer 1

Your W-2 has state wages in box 16, so it doesn't need your assignment based on moving date.

Property tax on Schedule A doesn't need assignment either.

The only item that needs proration is your K1 income. It seems that March 15 shall be used, since it is you, not your wife, who is one of the LLC members.

I'm not a tax professional, just moved to California in 2014, so I did a little research. TurboTax asked the date when I became a CA resident and the date of my wife, we moved in on the same day though.

Answer 2

Usually, you are a resident of a state when you live there. Since you moved in the middle of the year, you were a resident of WA before your move, and a resident of CA after the move. You were a part-year resident of both states. The difference between resident and nonresident is, if you are the resident of a state, your worldwide income is subject to that state's taxes; whereas if you are a nonresident of a state, only your income from that state is subject to that state's taxes.

So there are three periods during your year: 1) Resident of WA and working in WA, 2) Resident of WA and working in CA, and 3) Resident of CA and working in CA.

WA doesn't have income taxes. For CA, you will file as a part-year resident, nonresident before your move and resident after the move.

In practice, the fact that you started work at a different time than your move doesn't make any difference in taxes for you in this particular case, since WA doesn't have income taxes, so the fact you were resident there and working out of state isn't any different from if you were nonresident there and working out of state. (If it were the other way around, however, i.e. if there was a period when you lived in CA but worked in WA, then it would make a difference -- you would be subject to CA taxes on that period of work in WA.)