Properly Source the Income to the Other State

1. Go to the Schedule E or 8825 input screens.

2. Set the "State Use Code" or "State Code" to the other state (e.g., TX, AZ).

3. Use the Multi-State Input screen and allocate all gross income and expenses to the non-CA state.

4. Under the “CA Schedule IW” input section, ensure that the rental income is marked as non-CA source

I am missing something here.  As a California resident, the income is still taxable to him, right?  Is he filing a return with the other state also?  Which state allows a credit for taxes paid to the other?  

As an individual the client also files a form 568 with CA as a SMLLC. The form requires you to enter CA source gross receipts to pay the gross receipts fee on that amount (in addition to the required $800). But this income is not CA source, it's rental income from another state.

The client does pay tax on the income on the CA 540 return on based on schedule E (+/- federal/CA differences).

It's a schedule E. And I thought there was a state use code or state code, but maybe that's just for 8825's since I can't find it.

I can go into the State Taxes screen under CA SMLLC and override the amount, but with the proper coding in the schedule E screen I feel like I shouldn't have to do that? I try to avoid overrides when I can.

Well, at least he has the false sense of security that comes from thinking an LLC prevents you from being sued as an individual.  He's paying California the annual fee, but he doesn't have an umbrella policy that would provide real protection?