California RDP's & community property laws (again, groan)

[appelman]

Clients A and B are California registered domestic partners, who are now supposed to apply CA community property laws to their income and expenses. A has a job; B is self-employed. A has health insurance premiums deducted from his salary to cover B. These are pre-tax for California, but after-tax for the feds. Since A's wages are community income, and the premiums are deducted from them, should half of the premiums be allocated to B? A cannot deduct his half, since they are for the benefit of someone (B) who is not a spouse, according to federal law, and who does not qualify to be a dependent because he pays half his own support from community income. But is there any reason B cannot deduct his half of the premiums on Schedule A? Or even more aggressively, can he consider them to be self-employed health insurance premiums and take them as an above-the-line deduction against his self-employment income?

My head aches!

[Maribeth]

Clients A and B are California registered domestic partners, who are now supposed to apply CA community property laws to their income and expenses. A has a job; B is self-employed. A has health insurance premiums deducted from his salary to cover B. These are pre-tax for California, but after-tax for the feds. Since A's wages are community income, and the premiums are deducted from them, should half of the premiums be allocated to B? A cannot deduct his half, since they are for the benefit of someone (B) who is not a spouse, according to federal law, and who does not qualify to be a dependent because he pays half his own support from community income. But is there any reason B cannot deduct his half of the premiums on Schedule A? Or even more aggressively, can he consider them to be self-employed health insurance premiums and take them as an above-the-line deduction against his self-employment income?

My head aches!

Self-employment health insurance?? NO.

Itemized deduction on Schedule A? Yes

Maribeth

[joanmcq]

At least its not mandatory until 2010 filing year. But you can amend to 2007 if beneficial!

Jeez, even the expensive software doesn't split from joint to two SINGLE returns! Makes you really wish for the feds to just recognize marriage laws, like property laws, are defined at the state level and allow joint filings. Of course that doesn't help with civil unions & RDPs (or my bottom line since the intricasies of same-sex couples is a large part of my practice).

[appelman]

Has anybody noted the irony here?

Has anybody noted the irony here? The feds are willing to defer to
state law concerning application of community property law to RDP's.
making the situation ever so much more complicated, but they won't
conform to other state law concerning RDP's, such as allowing joint
returns, which would simplify matters greatly. And it seems to me they could do this on an administrative level, without getting involved with the wretched Defense of Marriage Act. Might there be any way of pursuing this idea?

[joanmcq]

It'll wend its way through the courts. Challenges are being made in most, if not all of the states that allow RDPs/civil unions/SSMCs.