I am filing PA tax as married filing separately. TurboTax assigns half of my husband's capital gain in his own account to my PA tax return. Am I overpaying my PA tax?

[wendyle1993]

My husband lives and works aboard and has stock trading capital gains under his name in an account located in a foreign country. I chose to file PA tax as married filing separately. However, I noticed that TurboTax split that capital gain and assigned half to my tax return. Now I need to pay PA tax on that half gain. I am wondering why?

I did go back to the TurboTax questionnaires and found there are no choices to make regarding who owns which investment accounts. However, for the interests and dividends session, TurboTax does ask who owns which account and split gain correctly. Can you please help explain if this is TurboTax's bug or the tax rules? Thanks!

[pk]

@wendyle1993 , I am confused here and think there is some missing info here --- if your spouse & you file MFS, how does Turbo get the info on capital gain ( assuming  you are not on the ownership/ beneficiary list and therefore no requirement for you to recognize  this asset  and  disposal thereof ) ?    Please tell more of the situation and the filing of the year before  + what is "abroad"-- which country, when did he establish new tax home there  etc. etc.

[wendyle1993]

My husband and I file federal tax as married filing jointly, and therefore TurboTax gets the information from both of us.

Since my husband lives and works abroad (China) for the whole last year, and does not need to pay PA tax, therefore for state returns, we use married filing separately. I need to pay PA tax, but my husband doesn't.

Below is how TurboTax splits our income based on our federal information:

1. We have joint accounts with Fidelity. TurboTax automatically splits half/half for any gain/loss from those accounts. I think that makes sense.

2. My husband and I both have individual accounts for dividends, and TurboTax automatically assigns the dividends based on who owns the accounts. That makes sense too.

3. My husband owns a foreign account which has capital gains. What I don't understand is why TurboTax automatically splits his foreign capital gains half/half with me in my PA state return. I am paying PA tax on half of his capital gains. 

Hope I clarified your questions. Thanks!

[pk]

@wendyle1993 , thank you for the explanation.  I think what is happening here is that  TurboTax is taking all the income details from the Federal and by default assigning 50% to you.  Suggest you go back to the federal income entry page and remove details about  incomes that have nothing to do with you  and/or your SSN is not listed on the ownership details.

Hope this helps 

Is there more I can do for you ?

[wendyle1993]

Thanks! I think that is what happened. Can I manually remove it, or do I have to create another version of the tax return for my income? Also, I already filed the state tax return. I should send an amended tax return?

[pk]

@wendyle1993 ,  I see --- you file federal as MFJ and the state as MFS ( because he has no locus  in the State and you do not want to let the State tax your joint income.

If your spouse is NOT a resident of the State ( under its rules of residency ),  then the easiest would be  to  prepare another dummy federal return as MFS, transfer that for the state  and complete the state..

The you file the federal MFJ ( the original version)  and the state  just MFS ( the alternate version ).

The other way would be to  edit the actual forms  ( the allocation  of federal incomes to state )  -- this is more risky but perfectly doable. 

Does this help ( a bit atleast ) ?

pk

[wendyle1993]

Yes, it helps! Since I only have one line item misassigned to me, it will be much easier to manually remove that from the form instead of creating another return. However, I don't know how to do it. Can you provide some advice or send me a link that has the instructions? Thanks!

[pk · Accepted solution]

@wendyle1993 ,  if you are using a TurboTax Windows CD / Download version  then the following should work  ( I say should because I do not have access to PA software  but  both CA and MI generally work this way :(

While you are the State program ,  select "forms" from the top  right hand ribbon; this would result in TurboTax showing two panes -- left shows the forms and worksheets  and the right pane shows the form/worksheet selected  on the left pane.  Select the worksheet  that shows income i.e the worksheet for  PA-40.  on the left pane.

Now you go into the form and correct the entry  (you may have to right click on the entry and choose "over-ride", enter the correction , enter and go back to form PA-40.

Once all changes  are done , go back to  step-by-step mode  ( top right hand ribbon.

 Now move forward on TurboTax so that it runs the  check.

Hopefully this will work for you 

pk

[wendyle1993]

It worked. Thanks a lot!