Solved: MFS in Community Property State
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Level 2

MFS in Community Property State

My spouse & I file separately and are in a community property state. I know that everything is split in half for us, but in addition to W-2 income, we both have a business with the business deductions. The income from these businesses are split between us.

 

Is the rule the same with the business deductions? Do we divide the business deductions in half between us, or keep those separate? 

Thanks!

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Accepted Solutions
Level 15

MFS in Community Property State

Yes, each business is split 50/50.  You may want to list two separate schedule Cs for each spouse, depending on the nature of the business (if they can’t or you don’t want to combine them on one schedule C, you would each need 2 schedule Cs). 

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*

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5 Replies
Level 15

MFS in Community Property State

If the business is incorporated in any way (LLC, S- or C-corp) then the following does not apply and you need to see an accountant.

 

For an unincorporated partnership where the only two partners are spouses, you can treat the business as a "qualified joint venture."  Each spouse will prepare a schedule C listing their share of the business income and expenses and pay income tax and SE tax on their share of the net income.

 

In a community property state, you must split the income and expenses 50/50, even if the participation in the business was unequal.  

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
Level 2

MFS in Community Property State

I appreciate the quick response. 

 

I don’t think I was clear about the business question, so I apologize.

 

We EACH have a separate sole proprietor business...I have one, he has one....does your answer still apply to this situation? Or is income & deductions still split in half?

 

i apologize for the confusion....and grateful for the help!

Level 15

MFS in Community Property State

Is the rule the same with the business deductions?

Yes. Absolutely *everything* is split 50/50 between your individual SCH C's (assuming the business is a disregarded entity.)

 

Level 15

MFS in Community Property State

Yes, each business is split 50/50.  You may want to list two separate schedule Cs for each spouse, depending on the nature of the business (if they can’t or you don’t want to combine them on one schedule C, you would each need 2 schedule Cs). 

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*

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Level 2

MFS in Community Property State

You’re awesome! Thanks so much!

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