I have a client who wants to file a MFS return. Resides in California. I do not know if her Husband works or not. There is a home that she says he gave to her and that it is in her name alone. That being the case, I am assuming that all deductions related to the house are hers to claim on Sch A? As I said, I don't know if her husband works, doesn't work, files separate or what. As I read the rules on this, both Fed and Calif, her W-2 income is community property. If that is the case, she should only have to report 50% of those earnings and the husband should have to report the other half. The last two years tax returns were prepared by another firm and they prepared them reporting everything on her return MFS. Another thing that puzzles me is I talked to a CPA friend today and he says that the W-2 earnings don't necessarily have to be split. He was in a hurry, so I didn't really have a chance to ask further questions. Am I missing/forgetting something here?
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I can't give you the answer either, but look in Pub. 555 starting at page 9,
under Community Property Laws Disregarded.
This might be a starting point. -
I checked the section you cited. Seems like that might be a way to support not splitting her income. Just feel like I should ask more questions regarding the husband, but not sure if I should since I'm preparing her return and not his.Originally posted by Gene V View PostComment
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Ask questions
until you are satisfied with the answers. Just explain to the client that you want to get her the best tax treatment.
If they lived together, yes, you could split the income, but it doesn't sound like they do.
In fact, if they are legally separated, she should be filing as single. I've done dozens of California MFS and when I can't find anything about the spouses income or how the spouse files, I just treat it as if they were filing S. If the client doesn' know about the spouses wherabouts, it is filed S. Frankly, I don't think the state, nor the IRS match the MFS returns, unless perhaps they are dealing with large amounts.
Her husband "gave" her the property. What does that mean? I have run into many that have said this, but the other spouse was still on the title.
This link should help you.
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Can't file single
California does not have statuatory separation. A couple is either married or divorced. Must have a court decree of divorce to file single.
Look at page 6 of Pub 555 under "relief from liability of community property law." Essentially, if the other spouse refuses to share the income and deduction information you can file MFS with only the taxpayer's income and deductions. I've done this many times.John Rumbold, EA, CFP(R)Comment
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Talked to the client further. Basically said that the husband just doesn't file. Didn't say that he works or doesn't work. My gut tells me that he is doing something, but doesn't want to file and she is/has been filing this way as a way of "protecting" herself? Pub. 555 page 6 seems to have a couple of exceptions that I might be able to use. Assuming that is what you were talking about jrumbold? She did indicate that they keep everything separate, checking accts, etc. and apparently the home is in her name. Read this from RIA, " A husband and wife may by agreement provide that income or property is to be treated as community or separate, and this agreement will be recognized and applied for tax purposes. An agreement between husband and wife that later earnings of each are to be the separate property of the spouse earning the income will make those earnings taxable to the spouse who earns them." Don't know if this clears anything up.Originally posted by jrumbold View PostComment
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Community Property
Yes, California has separation of community property by agreement but not legal separation for filing single. But, has client executed such an agreement. If not, use the exceptions - if husband refuses to cooperate then only her deductions and income. However, if she files MFS and itemizes then husband must itemize. This could lead to a dispute between the spouses.
See CA Pub 1051A for more information.
John Rumbold, EA, CFP(R)Comment
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I doubt that they have a formal agreement. As for the husband, she basically said he doesn't file so I don't think a conflict will arise.Comment
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