Many high income taxpayers in California file separate returns to permanently eliminate $10,000 of California tax. The is the 1% mental health tax assessed on income over $1M. When you separate returns income is allocated 50/50 in a community property state. For example, let's say a year with $5M of taxable income. The 1% tax is $40,000 (5M-1M) * 1%. When you separate the returns each return is allocated $2.5M of taxable income and the 1% tax is $30,000.
