Expenses Relating to Income Not Taxed by Minnesota

Expenses Relating to Income Not Taxed by Minnesota

When calculating Minnesota taxable income, certain expenses related to income that is not taxed by Minnesota may need to be considered. Minnesota uses a modified version of federal adjusted gross income (AGI) to determine state taxable income, and adjustments are made based on residency and income sourced within the state.

Key Considerations

• Residency-Based Adjustments: If you received income while a Minnesota resident, but that income is taxed by another state (e.g., Wisconsin), Minnesota may not tax it. In such cases, you must adjust your federal AGI to exclude income taxed by another state.
• Worksheet for Line 1 (Form M1CR): To determine the amount to enter on line 1 of Form M1CR, you must:
  1. Find your federal adjusted gross income (from line 1 of Form M1 or line 43 of Schedule MINC).
  2. Determine the portion of that income received while a Minnesota resident.
  3. Identify the amount from Step 2 that was also taxed by another state.
  4. Enter that amount on line 1 of Form M1CR.
• Nonresident Income Threshold: For nonresidents, if your Minnesota source gross income is $14,950 or more, you are required to file Form M1 and Schedule M1NR. This income is determined before business or rental deductions and excludes losses.

Relevant Forms and Instructions

Minnesota requires taxpayers to use specific forms to report income and deductions. The following forms are relevant when dealing with income not taxed by Minnesota:

• Form M1CR – Used to report income received while a Minnesota resident that is taxed by another state.
• Form M1 – The primary Minnesota individual income tax form; includes federal AGI adjustments.
• Schedule M1NR – Required for nonresidents with Minnesota source gross income of $14,950 or more.

Source:

Form M1CR

Form M1 Instructions

Disclaimer: Always verify details with official Federal or State Department of Revenue Forms and Instructions.