Montana Additions to Income
The following are additions to income that may apply to you. Please review the following information and enter the necessary information to your return.
Interest and Mutual Fund Dividends from Other States’ State, County, or Municipal Bonds
Enter the interest and dividend income that you received from bonds and obligations of another state, territory or political subdivision of another state (county, municipality, district, etc.)
Dividends Not Included in Federal AGI
Enter the amount of any dividends that you received that are not already included in your federal adjusted gross income.
Federal Tax Refunds/Overpayments Worksheet
If you received a 2014 federal income tax refund in 2015 and you claimed federal income taxes paid as an itemized deduction on your 2014 Montana tax return, you may need to report a portion or all of your federal refund as income on your 2015 Montana tax return. This is called the Tax Benefit Rule.
To the extent that the federal tax deduction that you claimed on your 2014 Montana income tax return reduced the amount of your 2014 Montana income tax liability, any subsequent refunds from this deduction are considered income in the year that you received it. Enter the information requested according to what was filed on the prior year return.
You will need to complete Worksheet II, Tax Benefit Rule for Federal Income Tax Refund, found on page 44 of the Montana Form 2 Instructions to determine whether your federal income tax refund is taxable in 2014, unless one of the following scenarios applies to you:
- If you claimed the Montana standard deduction when you filed your 2014 Montana return (instead of itemized deductions) in 2015, none of your federal income tax refund is taxable and you do not need to complete Worksheet II.
- Your deduction for federal taxes paid in 2014 may have been limited on your Montana tax return to $5,000 ($10,000 if filing a joint return). Because of this limitation, your refund may or may not be taxable. A simple way to check this is to subtract the refund that you received in 2015 from the total federal income taxes paid in 2014 (Form 2,Schedule III, lines 7a through 7d or Form 2M, Schedule I, lines 7a through 7d). If the result is more than $5,000 ($10,000 if you filed a joint return), none of the refund is taxable and you do not need to complete Worksheet II. If the result is less than $5,000 ($10,000 if you filed a joint return), please complete Worksheet II to determine whether your federal income tax refund is taxable.
If you and your spouse filed your federal tax return jointly and are now filing your Montana tax return separately,you will each need to complete a separate tax benefit rule worksheet. Prorate your federal income tax refund between you and your spouse by applying the ratio of your 2011 federal income tax deduction to the total federal tax deducted.
Other Recoveries of Amounts Deducted in Earlier Years that Reduced Montana Taxable Income
If in 2015, you received a reimbursement of an amount that you previously deducted on your Montana tax return and this deduction originally reduced the amount of your Montana income tax liability in the year of the deduction, you may need to report as income a portion or all of the reimbursement that you received on your 2015 Montana tax return. For example, you may have recovered amounts from more than one year, such as a federal income tax refund from 2011 and a casualty loss reimbursement for a loss claimed as a deduction in 2011.
To the extent that these deductions reduced your income tax liability in 2010 and 2011, you are required to include these reimbursements as income in 2015. If you have a reimbursement from a prior year deduction other than your 2014 federal income tax refund, please call us toll free at (866) 859-2254 (in Helena, 444-6900) or visit our website at revenue.mt.gov to get Worksheet IX, Tax Benefit Rule for Recoveries of Itemized Deductions.
Additions to Federal Taxable Social Security
Your social security benefits taxable to Montana may be different from the amount of taxable benefits that you reported on Form 2, line 20b. You should determine your Montana taxable social security benefits by completing Worksheet VIII, Taxable Social Security Benefits, found on page 48 of this booklet. Before you can complete your social security worksheet, you will need to complete your partial pension and annuity income exemption worksheet, Worksheet IV, found on page 45 of this booklet.
Sole Proprietor's Allocation of Compensation to Spouse
If you are a sole proprietor reporting net income on your federal Schedule(s) C or F, you have to report the full amount of your income in column A or B to determine your federal adjusted gross income on Form 2. However, if your spouse regularly and systematically provides substantial personal services in the operations of your business and is not paid a salary or wage, you can allocate a reasonable amount of compensation to your spouse. You need to base this allocation on an amount that is equivalent to the services that your spouse provides. It is considered taxable income to your spouse. This allocation will further reduce your taxable income as the sole proprietor of the business.
Services that your spouse provided for operating your household or services that are incidental to your operations cannot be used as a basis for allocation of income to your spouse. When you claim this addition to income, you should be prepared to provide us with verification of those services performed and the substantial contribution made by your spouse.
Medical Care Savings Account Non-qualified Withdrawls
Your non-qualified withdrawal from a Montana medical care savings account is a withdrawal that you made during the tax year for any purpose other than to pay for eligible medical expenses or long-term care. You can refer to Montana Form MSA for detailed instructions. You should report any nonqualified withdrawals from your Montana medical care savings account as an addition to federal adjusted gross income on this line.
Farm and Ranch risk Management Account Taxable Distributions
A distribution from your Montana farm and ranch risk management account is taxable in either of the following situations:
●The distribution is from a fund that was previously excluded from Montana adjusted gross income as a farm and ranch risk management account deposit; or
●The distribution was not distributed within five years from the date the original deposit was made.
You may also be subject to a penalty on your farm and ranch management account distribution if it is not distributed within five years from the date of the original
Addition for Dependent Care Assistance Credit Adjustment
If you have claimed business expenses for providing dependent care assistance on your federal Schedules C, E or F and now are claiming the Montana dependent care assistance credits on Form 2, Schedule V, line 15, you will have to add the amount of the dependent care assistance expenses used to calculate your Montana dependent care assistance credits on Montana Form DCAC as an addition to federal adjusted gross income on this line.
Addition for Smaller Federal Estate and Trust Taxable Distributions
Differences between Montana’s laws and the federal laws may mean that the Montana taxable distribution that you received from an estate or trust is greater than your federal taxable distribution from the same estate or trust. If so, the difference is an addition to federal adjusted gross income and you should report it on this line.
Federal Net Operating Loss Carryover
The federal net operating loss carryover that you reported on your Form 2, line 21 may be different from the amount of your Montana net operating loss carryover. On this line, you should enter the amount of your federal net operating loss carryover from line 21, and then compute your Montana net operating loss carryover using Montana Form NOL. The Montana net operating loss carryover is reported on Schedule II, line 27.
Share of federal Income Taxes Paid by your S Corp
If you are a shareholder in an S corporation that is required to pay a federal income tax on its income, you will have to add to your federal adjusted gross income that portion of your income that has been reduced by the federal income taxes paid by your S corporation. Refer to your federal Schedule K-1 to determine the amount of income that you are required to include as an addition to your federal adjusted gross income.
Title Plant Depreciation and Amortization
If you are taking a federal deduction for depreciation and amortization on a title plant, you have to add back to your federal adjusted gross income the amount of this
depreciation and amortization when you determine your Montana adjusted gross income.
Premiums for Insure Montana Credit
If you were the owner of a business that received a tax credit from the Insure Montana small business health insurance program, you are not allowed a deduction for the premiums used to calculate the credit. Because the credit cannot exceed 50% of the premiums, multiply the amount of credit you are claiming by two and enter the result on this line.
Enter any other additions to federal adjusted gross income not described in lines 1 through 15. Some examples of other additions include:
● You may have a passive or rental loss carryover that is larger for federal purposes than for Montana purposes because of differences in state and federal filings in
prior years. If this results in a larger passive or rental income reportable on your Montana tax return, enter the additional amount here.
● You may have a larger capital loss carryover for federal purposes than for Montana purposes for a similar reason. If this results in larger reportable capital gains,
enter the additional amount. Please note that when computing your Montana adjusted gross income, you are allowed to carryover capital losses incurred prior to
becoming a Montana resident or losses from activity in another state
Compensation and expenditures used to compute the film production credit have to be included in taxable income in the year that the compensation and
expenditures were incurred.