Article Structure
Dos and Don'ts
When filling out the Maryland 500DM form, it is essential to follow specific guidelines to ensure accuracy and compliance. Here are five important dos and don'ts to keep in mind:
- Do use the correct version of the form for the tax year you are filing.
- Do complete the worksheet accurately, ensuring all calculations are correct before submission.
- Do attach the completed Form 500DM to your Maryland income tax return.
- Do retain copies of your pro forma returns and any supporting documents for your records.
- Do consult the Maryland tax website or contact the Revenue Administration Division for any questions.
- Don't ignore the specific instructions for each line item on the form.
- Don't submit pro forma returns with the Maryland 500DM form; keep them for your records only.
- Don't forget to enter the appropriate code letter(s) for modifications on your tax return.
- Don't leave any required fields blank; provide all necessary information.
- Don't submit the form late; ensure it is filed by the tax deadline to avoid penalties.
Misconceptions
Misconceptions about the Maryland 500Dm form can lead to confusion and errors in tax filing. Below is a list of common misconceptions along with clarifications to help taxpayers understand the form better.
- Only Corporations Need to Use the 500Dm Form: This form is applicable to all taxpayers who are affected by the specified federal provisions, not just corporations.
- The 500Dm Form is Optional: Using the 500Dm form is mandatory if your Maryland return is impacted by the federal provisions outlined. Failing to file it when required can lead to penalties.
- The Form is Only for Depreciation Deductions: While depreciation is a significant part of the form, it also addresses net operating losses and other related changes that can affect taxable income.
- Filing the 500Dm Form Automatically Adjusts My Taxes: Completing the form does not automatically change your tax liability. You must accurately calculate and report the modifications on your Maryland tax return.
- Pro Forma Returns are Not Necessary: Pro forma returns are essential for accurately completing the 500Dm form. They help determine the amounts without the benefits of the federal provisions.
- All Changes are Positive: The form allows for both positive and negative modifications. Understanding whether to enter an amount as positive or negative is crucial for accurate reporting.
- Pass-Through Entities Don’t Need to File the 500Dm Form: Pass-through entities must still complete the form to report their modifications. Individual partners or shareholders will also need to use it.
- Once Filed, the 500Dm Form Does Not Need to be Retained: Taxpayers should keep a copy of the completed 500Dm form and any pro forma returns with their tax records for future reference and verification.
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Key takeaways
Here are key takeaways about filling out and using the Maryland 500Dm form:
- Purpose of the Form: The Maryland 500Dm form is used to report modifications that result from Maryland's decoupling from certain federal tax provisions.
- Eligibility: Use this form if your Maryland return is impacted by specific federal provisions, including special depreciation allowances or net operating loss carryovers.
- Pro Forma Returns: You must prepare separate pro forma federal and Maryland returns to accurately complete the 500Dm form. This helps calculate the necessary adjustments.
- Columns Explained: Column 1 captures the amounts from your federal return as filed, while Column 2 reflects those amounts without the benefits of the federal provisions.
- Net Modifications: After completing the calculations, enter the total net modification on line 5. This amount will affect your Maryland tax return.
- Attachments Required: Always attach the completed 500Dm form to your Maryland income tax return. Keep pro forma returns for your records but do not submit them.
Guidelines on Utilizing Maryland 500Dm
Completing the Maryland 500DM form involves several steps to ensure accurate reporting of modifications related to federal tax provisions. After filling out the form, you will need to attach it to your Maryland income tax return or amended return as appropriate.
- Begin by entering the ending date and beginning date of the tax year or fiscal year at the top of the form.
- Fill in the name of taxpayer(s) and the taxpayer identification number in the designated fields.
- Complete the worksheet by filling out the three columns:
- Column 1: Enter the amounts from your federal return as filed, including the impacts of the Special Depreciation Allowance, the special 5-year NOL carryback period, and the expanded Section 179 expensing provisions.
- Column 2: Enter the amounts from your federal return without the JCWAA and JGTRRA provisions.
- Column 3: Calculate the difference by subtracting the amount in Column 2 from Column 1 for each line.
- For each line in the worksheet, complete the calculations as follows:
- Line 1: For Depreciation Deductions, subtract Column 2 from Column 1 and enter the result in Column 3.
- Line 2: For NOL Deductions, do the same subtraction and enter the result in Column 3.
- Line 3: If there is a decoupling modification from a pass-through entity, enter it here. If it’s a subtraction, use a negative amount.
- Line 4: For Other Related Changes, enter the amount as positive if it increases taxable income or negative if it decreases it.
- Calculate the Net Decoupling Modification by totaling the amounts from lines 1 through 4 in Column 3. Enter this total on line 5.
- Determine the appropriate code letters based on the amount in line 5 and enter them in the boxes provided on your Maryland return.
- Attach the completed Form 500DM to your Maryland income tax return or your amended return, as necessary.
Form Preview Example
Maryland |
DECOUPLING |
YEAR |
OR FISCAL YEAR |
FORM |
_ (ENDING __________, ______) |
||
|
|
|
BEGINNING _______, ______ |
500DM |
MODIFICATION |
|
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Name of taxpayer(s)
Taxpayer identification number
Use this form only if the Maryland return is affected by the use (for any tax year) of any of the following federal provisions:
•Special Depreciation Allowance under the federal Job Creation and Worker Assistance Act of 2002 (JCWAA) as increased and extended under the federal Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA);
•Carryover of a net operating loss (NOL) based on the special
•Federal Section 179 depreciation deduction, taken for a tax year beginning in calendar year 2003, that was increased as a result of JGTRRA provisions.
Complete the worksheet below.
Column 1 |
Column 2 |
Column 3 |
Federal Return |
Federal Return without |
Difference |
as Filed |
JCWAA and JGTRRA |
Increase/ |
|
Provisions |
Decrease |
1. Depreciation Deductions .................................................
Subtract the amount in Column 2 from the amount in Column 1
and enter in Column 3. If less than 0, enter as a negative amount
2.NOL Deductions ...............................................................
Subtract the amount in Column 2 from the amount in Column 1
and enter in Column 3. If less than 0, enter as a negative amount
3.Decoupling Modification from a
If the modification is a subtraction, enter as a negative amount
4.Other Related Changes (See instructions)
If the net change increases taxable income, enter as a positive amount. If the net change decreases taxable income,
enter as a negative amount
5.Net Decoupling Modification ...............................................................................................................................
Net the amounts on lines 1 through 4 of Column 3. This is the Decoupling Modification. Enter here and include (as a positive number) in the appropriate line of the Maryland return being filed. Also enter the applicable letter code(s) in the boxes provided on the return. See table below. (When determining which code to use, disregard any amounts on line 4.)
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If line 5 is |
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Use the following code |
If line 5 is |
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Use the following code |
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Return |
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if there is an amount on: |
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if there is an amount on: |
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positive enter |
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negative enter |
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Filed |
Line 1 |
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Line 2 |
Both lines 1 and 2 |
Line 1 |
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Line 2 |
Both lines 1 and 2 |
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on the line for: |
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on the line for: |
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only |
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only |
and/or line 3 |
only |
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only |
and/or line 3 |
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500 |
Other Additions |
e |
|
f |
dm |
Other Subtractions |
j |
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k |
dm |
502 |
Other Additions |
l |
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m |
dm |
Other Subtractions |
bb |
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cc |
dm |
504 |
Other Additions |
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No code required |
Other Subtractions |
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No code required |
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505 |
Other Additions |
j |
|
k |
dm |
Other Subtractions |
p |
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q |
dm |
500X |
Total Addition |
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No code required |
Total Subtraction |
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No code required |
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Modifications |
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Modifications |
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502X |
Additions |
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No code required |
Subtractions from |
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No code required |
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To Income |
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Income |
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INSTRUCTIONS FOR |
PAGE 2 |
MARYLAND FORM 500DM |
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DECOUPLING MODIFICATION
General Instructions
Purpose of Form
Maryland has decoupled from certain federal provisions, as listed at the top of Form 500DM, by enacting addition and subtraction modifications which eliminate the effect of the changes on Maryland and local taxes. This form is used to determine the amount of the required modification.
Use of Pro Forma Returns
Separate (pro forma) federal and Maryland returns must be prepared for use in completing Form 500DM. In addition to calculating depreciation and NOL deductions without the benefits afforded under the Job Creation and Worker Assistance Act of 2002 (JCWAA) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA), pro forma returns will also help to determine other related items that affect Maryland and local income tax liability (e.g., income items, addition and subtraction modifications, deductions and credits).
Additional Information
For more information regarding these modifications, see Administrative Release 38 which is available on our website at www.marylandtaxes.com or from any office of the Comptroller.
Specific Instructions
Column 1 – Federal Return as Filed
Column 1 (lines 1 and 2) is used for the amounts reported on the federal return which include the impacts of the Special Depreciation Allowance, the special
Column 2 – Federal Return Without JCWAA and JGTRRA Provisions
Examples of items affected by decoupling are:
¥Gain or loss on sale of property
¥Recapture of depreciation
¥Passive loss
¥Maryland itemized deductions
Line 5 – Total
Net the amounts from lines 1 through 4 and enter on line 5. If line 5 is positive, include this amount in the appropriate line of the Maryland tax return being filed. Also enter the appropriate code letter(s) in the box(es) provided for the type of addition modification (either depreciation or NOL, or both).
If line 5 is negative, include this amount as a positive number in the appropriate line of the Maryland tax return being filed. Enter the appropriate code letter(s) in the box(es) provided for the type of subtraction modification (either depreciation or NOL, or both).
See the table at the bottom of Form 500DM for the line numbers and code letters to use.
Credits
For Maryland income tax credits affected by electing JCWAA and/or JGTRRA treatment, enter on the return to be filed, credits as calculated on the Maryland pro forma return without JCWAA and/or JGTRRA treatment.
Note: If a credit for a tax paid to another state was claimed on the original return and the tax liability to the other state and/or Maryland changes as a result of the treatment of the JCWAA and/or JGTRRA provisions in either state, a revised Form 502CR must be completed using the Maryland and the other stateÕs returns to be filed including all amendments and modifications.
Column 2 (lines 1 and 2) is for the amounts which would have been reported on the federal return using federal law in effect prior to enactment of the JCWAA and JGTRRA (without regard to the Special Depreciation Allowance, the special
Column 3 – Change – increase/decrease
Lines 1 and 2 — Subtract the amount in Column 2 from the amount in Column 1. Enter in Column 3. Line 4 is for the change to taxable income in other related items (calculated before and after application of the JCWAA and JGTRRA provisions) that would affect taxable income. If the change decreases taxable income, enter the amount with a minus sign
Line 1 – Depreciation Deductions
Use line 1 only for the depreciation expense deductions.
Line 2 – NOL Deductions
Use line 2 for NOL deductions. For Columns 1 and 2, limit the deductions as follows: For a corporation, the deduction may not exceed the federal taxable income. For all others, the deduction may not exceed the federal modified taxable income as determined on federal Form 1045, Schedule B.
Line 3 – Decoupling Modification from a
Use line 3 for decoupling modifications reported by a
Line 4 – Other Related Changes
If the entity is a PTE (partnership,
Income from a PTE
Each partner, shareholder or member that has a decoupling modification from a PTE must also complete Form 500DM. Enter the decoupling modification from the PTE on line 3 of Form 500DM. Also use this amount to adjust the income from the PTE on the pro forma federal return to determine if other related changes exist. These changes would be entered on line 4 of Form 500DM. Do not include any decoupling modification on the Maryland pro forma return.
Attachment of Forms
¥Original Return Attach the completed Form 500DM to the Maryland income tax return to be filed. Pro forma returns used to complete this form are not to be filed with the Comptroller or the IRS, but should be retained with your tax records.
¥Amended Return Attach the completed Form 500DM, schedules and pro forma returns to amended return to be filed.
For questions concerning Form 500DM contact:
Revenue Administration Division
Annapolis, Maryland
www.marylandtaxes.com
Decoupling may also affect other items included in federal adjusted gross income (AGI) allowable itemized deductions, as well as Maryland addition and subtraction modifications. Because these items also affect Maryland taxable income, the decoupling modification must include an adjustment for these changes. If the net change for these items reduces taxable income, enter as a negative amount
07/03
Common mistakes
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Not using pro forma returns: Many individuals fail to prepare separate federal and Maryland pro forma returns. These are essential for accurately completing the 500DM form.
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Incorrectly filling out columns: Some people mistakenly enter amounts in the wrong columns. Ensure that Column 1 reflects the federal return as filed, while Column 2 should show the federal return without the JCWAA and JGTRRA provisions.
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Ignoring negative amounts: When calculating changes, individuals often overlook the need to enter negative amounts correctly. If a deduction decreases taxable income, it should be marked with a minus sign (-).
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Missing required codes: Failing to include the appropriate code letters for additions or subtractions on the Maryland return can lead to processing delays or errors. Always refer to the table provided on the form.
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Not attaching the form: Some taxpayers forget to attach the completed 500DM form to their Maryland income tax return. This is a crucial step that should not be skipped.
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Overlooking the decoupling modification: Individuals may fail to net the amounts from lines 1 through 4 correctly. This total is essential for determining the final decoupling modification amount.
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Confusing line items: Misunderstanding which line items to report can lead to mistakes. Each line has specific instructions that must be followed closely to avoid errors.
Learn More on This Form
What is the purpose of the Maryland 500Dm form?
The Maryland 500Dm form is designed to determine the decoupling modifications required for Maryland state taxes. This form is necessary when a taxpayer's Maryland return is influenced by certain federal tax provisions, such as the Special Depreciation Allowance or the carryover of a net operating loss. By completing this form, taxpayers can eliminate the effects of these federal provisions on their Maryland tax liability, ensuring that they comply with state tax regulations.
Who needs to file the Maryland 500Dm form?
How do I complete the Maryland 500Dm form?
To complete the Maryland 500Dm form, taxpayers should first prepare separate federal and Maryland pro forma returns. This allows for accurate calculations of depreciation and net operating loss deductions without the federal benefits. The form requires entering amounts from the federal return as filed and then determining the differences caused by the decoupling provisions. The form includes a worksheet to help calculate the necessary modifications, which will ultimately be reported on the Maryland tax return.
What should I do if I have a decoupling modification from a pass-through entity?
If you are a partner, shareholder, or member of a pass-through entity that has a decoupling modification, you must also complete the 500Dm form. You will report your share of the modification on line 3 of the form. It is essential to include this amount when adjusting your income from the pass-through entity on your pro forma federal return. This ensures that any related changes affecting taxable income are accurately reflected.
Where can I find more information about the Maryland 500Dm form?
Additional information regarding the Maryland 500Dm form can be found on the Maryland Comptroller's website or by contacting their Revenue Administration Division. They provide resources, guidelines, and answers to frequently asked questions to assist taxpayers in navigating the decoupling modifications and the completion of the form. This support is crucial for ensuring compliance and understanding how federal provisions impact state tax responsibilities.