CA Preparers

[Terry D EA]

I have a new client who is in the military and has moved to NC the last week of December. Here is the situation, he has been living in Florida for the last year, all income was from Florida. Spouse was a resident of CA. If I am understanding correctly, he is Domiciled in CA and considered a non-resident. CA form 540NR. Because the spouse is a resident of CA and CA is a community property state, one half of the taxpayers income is adjusted as a military pay adjustement correct? This is a little confusing and I am using TRX Pro and it doesn't appear the amounts are either flowing correctly or I have entered them incorrectly. I don't see one half of the military pay in column B of Sch CA line 7. Nor do I see the letters MPA beside column A. I do see the proper amounts in the other columns. What am I missing here? Working off of an input form is a PITA in this situation. When I hover over the adjustments box on line 7 of the input form it tells me generally an input here is not needed and if the person in the military is Domiciled in one of the other community property states then they are entitled/qualified for the adjustment and the proper MPA will be entered next to column A. Any help is appreciated.

[joanmcq]

Is the military person domiciled in CA? Or FL? The way I'm reading this TP is military, military domicile is state of residence when entering the military, unless the military taxpayer changes it.

Is spouse from CA, and therefore has CA domicile?

[Terry D EA]

The military person is domiciled in CA. He jointly owns a home in CA with his spouse but has been stationed in FL for the entire year per military orders. Spouse was a resident of CA.

[BulldogTom]

CA taxes all worldwide income of its residents. The taxpayer and the spouse are CA domiciled, that means CA residents. CA 540. Not a CA540NR. All income goes on the return, regardless of where earned.

[Terry D EA]

Tom,

I don't mean to question your knowledge on this subject but it is confusing at best. Here is a statment for military personel from CA PUB 1032. I am still leaning to my original post as the Pub also states the spouse as a CA resident is taxed on one half of the husbands military pay. I am trying to be sure the amounts I have entered on the forms are correct. Thanks.

Stationed Outside California – California military servicemembers who leave under PCS orders become nonresidents of California for income tax purposesAll income received or earned prior to departure is subject to tax by CaliforniaAfter departure, only income from California sources is subject to tax by CaliforniaNonresidents are generally not taxed by California on income from intangibles, such as dividends from stocks or interest from bonds or bank accounts.

• California military servicemembers who leave California

[MAMalody]

Service members domiciled in CA must include their military pay in total income. In addition, they must include their military pay in CA source income when stationed in CA. However, military pay is not California source income when a service member is permanently stationed outside of CA.

[jainen]

>>military pay is not California source income when a service member is permanently stationed outside of CA<<

It is, however, community property income because the service member is domiciled in California and the spouse is a California resident. I didn't quite follow the data entry issue in the original post; I agree with Bulldog Tom that they should be filing CA540 instead of the 540NR. In any case, the spouse owes California tax on half that military pay whether a separate or joint return.

[Terry D EA]

Thanks Jainen and MaMalody, I do agree with both of you but am still questioning the use of the CA540 instead of the 540 NR. My reasoning is the Pub I mentioned earlier stated to use the 540 NR for this client's scenario. The military stuff for CA is as I said earlier, confusing. The input question is my confusion with TRXPro. I have tried to see where to input 1/2 of the military pay. The total income is correct and it appears that the figures are flowing to their respective columns. I will give this thing one final review later this evening before I transmit it. I am going to look further into the form usage to be sure I am using the correct form. I am being extremely careful here as Liberty Tax caused this couple some grief with CA last year for filing it wrong. Thanks for all the help.

[jainen]

>>the Pub I mentioned earlier stated to use the 540 NR<<

Yes, I got that wrong. I also was technically wrong in thinking the spouse's share of community income was California source. But you still must include it in Column E with California source income.

That's the answer to your original question. You adjust for the service member's non-taxable half of military pay in Column E. There is no actual place on the form to enter the excluded amount. Just put whatever is taxable as California income in Column E.

Again, do not subtract 1/2 the military pay in Column B. Military wages are taxed the same as federal under California law. That column is for things like Social Security, which California does not tax in any circumstances. See the explanation for Column B and C in the instructions to Schedule CA(540NR) at https://www.ftb.ca.g..._540nrcains.pdf

[BulldogTom]

Terry, my apologies. I have not done a military return in a very long time, and I blew that one. Just looked up the pub 1032 and you are correct. They file a 540 NR and the income includes 1/2 of military pay because the spouse stayed in CA.

Sorry, and thanks for educating me.

Tom

Lodi, CA

[Terry D EA]

Tom and Jainen, I haven't done military for a long time either and besides, I am in NC so CA is definitely strange to me. There is no need to apologize and it is nice to know that you guys are there so we can pick each others brains when we need to. I had another strange one come in today. Client has questions regarding taxes due on withdrawals from a 401K if he moves to another country and maintains a US mailing address. He is over sixty so no early penalty but I think taxes are due but need to do alot of research. So, we always come across these things that test our memory and abilities.

[Gail in Virginia]

As long as he remains a US citizen, he will pay US taxes on his worldwide income regardless of where he lives as I understand it. And that would seem to me to include 401(k) distributions.

[joanmcq]

And no exclusion for non-earned income. But he can take the FTC if the income is taxed where he is living.

[Terry D EA]

Thanks Joan, I assume you are talking about the taxpayer who is moving to another country. It is not clear at this time, but he may not be employed where he is going. He is going to take care of his ailing sister and plans on living on the withdrawals from teh 401K. As far as the military couple, I have completed that return and entering the information is TRXPro was a challenge. When you tell the program what the military pay was, it did not add one half to the spouse's income. I had to do that manually so column E of the forms showed the correct amounts. Glad I don't do these kind of returns every day. :wacko:

[Hahn1040]

Back to the CA return issue:

see CA pub 1032:

Servicemembers domiciled outside of California, and

their spouses, exclude the servicemember’s military

compensation from gross income when computing the tax

rate on nonmilitary income .

• Stationed Outside California – California military

servicemembers who leave California under PCS

orders become nonresidents of California for income

tax purposes . All income received or earned prior to

departure is subject to tax by California . After departure,

only income from California sources is subject to tax

by California . Nonresidents are generally not taxed by

California on income from intangibles, such as dividends

from stocks or interest from bonds or bank accounts .

So what it is saying is that if the military member and spouse were residents of CA, then when they are stationed outside of CA they are considered non Residents for tax purposes and none of their income is taxed.

RE the person moving overseas: As a US citizen, he must report worldwide income on the US return. his US source income is taxed no matter where he lives with few exceptions. Sometimes social security is not taxed to the US if living in a country with reciprocal agreement, Then it is taxed to the country he lives.

[jainen]

>>when they are stationed outside of CA they are considered non Residents<<

Do not confuse "domicile" and "residence." In the original post, the servicemember stationed in Florida was not a California resident, but WAS still domiciled in California. That is why the spouse must include 1/2 of the community income, even though the servicemember's half is excluded.