Need help with MFS in CA

[taxdan]

Can someone please instruct me on how to enter W-2 info into tax software when doing a MFS return in a community property state (CA)? How do I show 1/2 of the earnings and 1/2 of the withholding on the separate return? Do I simply enter 1/2 of the information from the W-2?...or back out the extra 1/2 elsewhere on the return?

Pub 555 doesn't seem to help on HOW to enter the W-2 information...just that 1/2 gets reported on each return.

I do know about the community property worksheet in the efiling section.

Any help is greatly appreciated.

Dan

[jainen]

>>how to enter W-2 info into tax software when doing a MFS return in a community property state<<

According to Pub 555, "List only your share of the income and deductions on the appropriate lines of your separate tax returns." But nobody does it that way, because obviously none of the W-2 entries will match.

Create a spreadsheet (I just use pencil & paper) with four columns. First two are the source and amount of income or deduction. The others are allocations to either spouse. Often it's 50/50, but you can't assume that especially if the spouses do not live together.

Then enter all items in the usual way, and make a summary adjustment called "allocation for community income" plus or minus on Line 21.

[joanmcq]

For a hetero couple? That I don't know; havn't ever done one.

[taxdan]

Jainen, do you normally efile these type of returns and just keep the spreadsheet for your records?

Also, how do you handle the adjustment for the Federal withholding from the W-2s since half of each spouse's withholding goes on each return?

[jainen]

>>how do you handle the adjustment for the Federal withholding<<

Good question! The only reasonable way is the awkward "share" from Pub 555. Add it to the worksheet so all your notes are on a single page.

I haven't done one of these in a couple of years, and back then we couldn't efile MFS from a community property state. Now I believe there is a way, but I greatly discourage/refuse MFS with community income. If they're so determined to keep their stuff away from their ever-lovin', let 'em just sign a pre-nup!

As Joan points out, the problem in California these days is UN-married joint and MFS filers.

[taxdan]

Thanks so much for the input Jainen.

If someone with your depth of knowledge is leery of e-filing a MFS return in a community property state, then I think I will choose the paper filing route also.

Luckily, this will be a one time thing for this client. They will be divorced this year and not have to deal with one another...at least tax wise.

I am still trying to convince them to file MFJ one last time as they would lose child care credit and education credit.

Question....if both spouses file an extension as MFS, are those extensions still valid if they then choose to file file MFJ?

Thank you again!

[jainen]

>>leery of e-filing a MFS return<<

It's not the efile that bothers me.

Yes, if they file MFS extensions they can still change to MFJ. Or they could amend to MFJ later.

[BulldogTom]

I had one IRS auditor tell me one time that the quickest way to get an audit is to file MFS in a Comm Prop state. Nothing matches, and the computer will almost always kick it out. They "suggested" that if they really wanted to file MFS, keep any income that is reported via third party on their own return (W2, 1099's).

You have to remember that in CA, community income only starts when the community starts, so the first or last year of marriage may present some planning opportunity. Community ends in CA when the couple splits with no intention of reuniting.

Tom

Lodi, CA

[joanmcq]

Yeah, I'm having fun with that one with my new clients that became RDPs this year. When you get married, you are considered married for the full year. But when it's just a community property split, like for federal, I need to allocate separate & community by date. It can get pretty darn complicated!