Married couple (1 in FL, 1 in CA)

[filer12345]

My wife has been working in FL since 2019 and never moved states. I started working remotely for a CA company in 2021 and they withheld CA tax for 2021 and 2022.

For 2021 and 2022, we filed jointly for Federal and CA (and I got a full refund for CA as I never touched the state). I am worried I should have filed jointly for Federal and Separate for CA (just me). In any case, the refund would have been the same.

In 2023, I moved to CA and my wife stayed in FL (never touched CA). So I think I should file Joint for Federal and then Separate for CA (and I am the only one that needs to file in CA, she doesn't given how I understand the rules). 

How do I treat my children (they stayed in FL) and joint investment accounts? What about prior year loss carryovers? 

[DavidD66]

According to the California Franchise Tax Board:

If you file a joint tax return for federal purposes, you may file separately for California if either spouse was either of the following:

• An active member of the United States armed forces or any auxiliary military branch during 2023.
• A nonresident for the entire year and had no income from California sources during 2023. 

Since Florida is not a Community Property state, community property rules do not apply.  If you have income from sources that are owned jointly (such as interest, dividends, and capital gains) you will need to report half of that income.   The same for loss carryovers.  As for the children, you can claim them as dependents on your California state tax return.  

[TomD8]

For more detail on how to report your income on your California return, see the Type 3 example on page 13 of this California tax publication:

https://www.ftb.ca.gov/forms/2023/2023-1031-publication.pdf

[filer12345]

Thank you. This is very helpful. I am still confused by some things. In 2021 and 2022 when my employer withheld CA taxes when I was residing in FL, I filed (by mistake) MFJ in CA even though I could have done MFS as my spouse never touched CA nor had any CA income or CA employer. So my concern is for 2023, when I moved to CA (she stayed in FL), should I do MFJ or MFS? Per the rules it seems I can do MFS and she doesn't have to file, but it might be the same as FL is not Community Property State. 

When I filed prior years with CA (got full refund), I had loss carryovers from investments. Now that I become a CA resident, can I use those carryovers or not because they were generated outside of CA? 

Lastly, I don't have a permanent address in CA. Can I use our FL address for both Federal and State returns? I travel back and forth (but spent >6 months in CA in 2023)

[DavidD66]

Based on what you said about traveling back and forth between California and Florida, and not having a "permanent address in CA", I would say you are not a California resident.  You may have spent a lot of time in California and worked in California, but you are still "domiciled" in Florida.  You are still a Florida resident, with California income you must report to California.  You should file a California non-resident return.   File joint for federal tax, and separate for California.  You can claim your dependents and use your capital gains loss carryovers on both returns.  Community property rules do not come in to play. 

[filer12345]

@DavidD66 thank you so much! As I rent in CA and my W2 has the CA address of my rental I rather be safe and say I am domiciled in CA... Let's say I earned $100 and my wife earned $50

For CA, should I file jointly or separate? When I do jointly the system asks what W2 income was CA (I input $100) and then it does all the calculations (I have prior year loss carryovers that it uses against income - even though I am a new resident -, I add my HSA earnings, etc.) 

The other route I could do is do the dummy separate federal and then file the separate CA. If that's the case, should I file alone or BOTH of us need to file separate?

How do I figure out what's more beneficial, if joint or separate? 

[DavidD66]

Renting a place to stay does not make your domicile.  An individual generally has only one domicile, which is the place considered the true home, the place where the individual intends to return to when away.  Although an individual may have more than one residence, they generally only have one domicile.  Domicile is meant to be permanent, and residence means living in a particular locality which only requires a physical presence.  Although domicile requires residence, residence in and of itself does not establish intent to remain permanently, which is necessary for domicile.  Given your previous statements, I still think you are a Florida residence.  If you file as a non-resident, only your California earned income will be subject to California tax.  If you file as a resident, any other income you have (50% of investments owned jointly) will be taxable by California.

You definitely should file separate in California, especially if you file as a California resident.  If you file jointly as a California resident, you will be subjecting all of your income, and your wife's to California tax.  

The only way to know for sure whether it might be more beneficial to file your federal taxes separately, the only way to know for sure is to prepare a joint return and then two separate returns.  It is almost always better to file jointly.  According to the IRS, "...in almost all instances, if you file separate returns, you will pay more combined federal tax than you would with a joint return. This is because ... special rules apply if you file a separate return."    

Your wife should not file a California tax return.  

[filer12345]

Thank you. Because my job assignment in CA is indefinite and I don't have plans to relocate to FL, I think the safer bet would be for me to file a CA resident return. I can allocate with the system the investment accounts (the ones from my wife, the ones that are mine, the ones that are joint) same with the HSA which we have separate HSAs etc.

In that case, my Joint Federal return will have my FL address and my CA return will have my rental apartment in CA (the same address as the W2). 

What happens with my tax loss carryovers from prior years @DavidD66 and which adjustments do I need to make to CA? Can I claim my children in CA even though they don't live with me?

[filer12345]

David I am doing MFJ for both Federal and CA. For CA, it asks you "what is your CA income" so I only included my W2 and not my wife's, so that's excluded. I am counting 50% of the dividends as CA income to be safe. I am very confused by this screen "Allocating Capital Loss Carryover"

We have a federal loss carryover of $20K. It is all related to stocks/bonds and were generated outside of CA.

The screen asks:

- Prior year carryover loss as if CA resident for all prior years

- Prior year carryover loss as if CA nonresident for all prior years

What should I put in each of them? it's $20K in both? @DavidD66 

[AmyC]

No, the capital loss carryover is only allowed based on CA income from prior years. Use the carryover from your 2022 return.

From the CA instructions:

Line 7 – Capital Gain or (Loss)

Generally, no adjustments are made on this line. California taxes long and short term capital gains as regular income. No special rate for long term capital gains exists. However, the California basis of the assets listed (within this line instructions) may be different from the federal basis due to differences between California and federal laws.

• Capital loss carryover from your 2022 California Schedule D (540NR).

@filer12345