Texas/Arkansas couple

[thomtax]

Clients have following situation:

Husband has taken employment with company as contract labor, causing him to file Sch C.
This work is done in Texas. It appears as if his "tax" home will be in the Texas, while her home is in Arkansas. I am looking to determine what will happen if filed as MFS.

Since Texas is a community property state, do I allocate one half of the business income to wife? This would then be taxed in Arkansas. Since Texas has no state tax, this might save some tax. If it is this way, would she then have SE tax on her half?

All thoughts and approaches will be appreciated.

LT

[Black Bart]

Thom

Clients have following situation:

Husband has taken employment with company as contract labor, causing him to file Sch C.
This work is done in Texas. It appears as if his "tax" home will be in the Texas, while her home is in Arkansas. I am looking to determine what will happen if filed as MFS.

Since Texas is a community property state, do I allocate one half of the business income to wife? This would then be taxed in Arkansas. Since Texas has no state tax, this might save some tax. If it is this way, would she then have SE tax on her half?

All thoughts and approaches will be appreciated.

LT

Since you're asking for "all thoughts and approaches," I'll throw in my two cents worth (not sure if it's worth that much).

I guess I'm not seeing it like you are. While I don't know a thing about community property states, it seems to me that whether or not Texas is his "tax home" is only relevant to travel expense deductibility and not to whose income it is. As you know, Arkansas taxes its residents (anyone who maintains a home here) on all income earned everywhere, so I think he owes the state of Arkansas tax on all that Texas-earned money. And it would be all his on the AR return since he actually earned it -- even though it would, under our state's rules, save money to give her half. I don't believe Arkansas would deem Texas com-prop rules to have any bearing on AR tax policy.

Further, the SE question is a federal issue and I don't see that state treatment has any standing to determine its treatment -- it's his SE earnings.

Please feel free to throw rocks at me if you think I'm full of baloney.

[thomtax]

Please feel free to throw rocks at me if you think I'm full of baloney.

Of course I think you are full of baloney. I'm not saying that is a bad thing. As a matter of fact that is what I had for a meal just a couple of days ago - a baloney sandwich, or if you want to pick on me, bologna.

Thanks for your thoughts. I need them. I'm just trying to figure out some way to help them, since he did not pay any estimated taxes and has a terrible tax bill now. And, quite frankly, they are pretty tight now. She was laid off last year, as was he. That's why he went to Texas. And he is actually living down there while she is here. She goes down and stays a few days every couple of weeks. I understand he only gets up here about once a month.

Since he anticipates working longer than a year, it does not fall under the temporary work classification. The one thing that will help is that most of the time, they are actually sent out to another location and we can deduct those expenses.

Thanks again. And I will appreciate hearing from community property states people besides Texas. The big difference is that Texas does not have income tax.

LT

[DTS]

Community prop

LT,

Maybe, take a look at this CA pub, as there are some good examples (lots) of situations and then do a comparison of your couple's situation inTX/AR.

I understand that each state has different rules, but there may be some similarities, as well.

http://www.ftb.ca.gov/forms/misc/1100.pdf

D

[thomtax]

Thanks for the link

There is a lot of info there, but it all seemed to be towards both people living together, unless I missed it. Appreciate the thought.

LT