Can file married filing separately in community prop with each spouses enter his/her own income on form8958 and his/her return?

[Sam Hopi]

my wife has a w-2 but for me I have more the her so she wants file separately and said everyone file his/her return based on his/her own income no splitting of combined income.

[xmasbaby0]

If you were legally married at the end of 2022 your filing choices are married filing jointly or married filing separately.

Married Filing Jointly is usually better, even if one spouse had little or no income. When you file a joint return, you and your spouse will get the married filing jointly standard deduction of $25,900 (+$1400 for each spouse 65 or older)  You are eligible for more credits including education credits, earned income credit, child and dependent care credit, and a larger income limit to receive the child tax credit. 

If you choose to file married filing separately, both spouses have to file the same way—either you both itemize or you both use standard deduction. Your tax rate will be higher than on a joint return. Some of the special rules for filing separately include: you cannot get earned income credit, education credits, adoption credits, or deductions for student loan interest. A higher percent of your Social Security benefits may be taxable. Your limit for SALT (state and local taxes and sales tax) will be only $5000 per spouse. In many cases you will not be able to take the child and dependent care credit. The amount you can contribute to a retirement account will be affected.

If you live in a community property state, you will be required to provide additional information regarding your spouse’s income. ( Community property states:  AZ, CA, ID, LA, NV, NM, TX, WA, WI)

 If  you are using online TurboTax to prepare your returns, you will need to prepare two separate returns and pay twice.

https://ttlc.intuit.com/questions/1894449-married-filing-jointly-vs-married-filing-separately

https://ttlc.intuit.com/questions/1901162-married-filing-separately-in-community-property-states

https://ttlc.intuit.com/questions/1894449-is-it-better-for-a-married-couple-to-file-jointly-or-separ...

[xmasbaby0]

It seems like what you are asking is to disregard the rules of the community property state you are in and file separate returns.  No.   You follow the tax laws----like them or not.  If you are in a community property state you follow the rules for filing separately in your state.

[Sam Hopi]

 disregard the rules? what does mean?

Thanks but in Community Prop like CA, wife wants declare her own income on 8958 and husband agrees with this and  husband wants to mention own income on 8958 form and tax return without sharing wife's income, like wife. Sure, we pay more tax to Fed and State and we already knew about that, is it possible? However we know 8958 must be filed for both and Itemize/standard as well.

[KrisD15]

No, you can file separately, but if you live in a community property state, ALL W-2 income will need to be "shared". 

I believe that what xmasbaby0 is trying to point out to you is the fact that in a Community Property State, such as California, earned income is shared as between you both. So basically half of what you make and half of what she makes is considered your income (if you file separately) and half of what you make and half of what she makes is considered your spouse's income.

You can file a Married Filing Jointly return, or a Married Filing Separately return. Either way, you will each claim half that Earned Income because those are the rules in California. 

You MAY lose some credits when filing separately, so that might not be the best way to file.

SOME income MAY be separated, such as capital gains from stock only one of you own it, or funds that are inherited, but Earned Income reported on a W-2 is shared.  

Here is a link to provide more information:

TurboTax explains Community Property

[xmasbaby0]

This is what I was referring to when I commented that you appeared to want to disregard the rules:

"so she wants file separately and said everyone file his/her return based on his/her own income no splitting of combined income."

If you file MFS in a community property state you DO have to split the combined income.

[VolvoGirl]

Here is a page from California FTB about filing separately for  Community Property.  Sorry you have to follow CA rules

https://www.ftb.ca.gov/file/personal/filing-status/married-rdp-filing-separately.html 

[Sam Hopi]

Thanks a lot, what types of income include for splitting? how about social security benefits? AS I understood only earned income should be shared, right? I really appreciate for your help.

[TeresaM]

It depends, retirement income as community income depends in which state you reside and when the income for the pension or social security was earned. On your state return, California does not tax social security income from the United States, including survivor's benefits and disability benefits. 

In general, each person's Social Security benefits are their from their own account and are their own income.  For more information of retirement payments as federal community income, please click on this link to see IRS Publication for Community Property. On pages 5 and 6 it shows example scenarios.

Also there are exceptions. Please see page 9 of the same IRS Publication under Community Property Laws Disregarded to see if you may qualify for an exception. 

[xmasbaby0]

@Sam Hopi Are you using the CD/download software or online?   It would be a good idea for you to prepare returns both ways so that you can compare the results ---prepare a joint return and then prepare returns as Married Filing Separately--following all of the rules for MFS in a community property state so you can see for yourself how it works out for you and your spouse.

If you have the CD/download you can prepare an unlimited number of returns so it it relatively easy to prepare the three returns-- or even to try the "what if" feature of the desktop software.

If you are using Desktop software:

https://ttlc.intuit.com/questions/2895312-how-can-we-compare-married-filing-jointly-with-married-fil...

If you are using online it is trickier but you can do it.

It is not easy to compare MFJ to MFS using online TT but you can do it.  Since you only get one return for each account and user ID, you have to use 3 accounts and user ID’s—one for MFJ and two for each of the MFS returns.  Compare, choose, and file—and pay—accordingly.

It is much easier to do this comparison using the desktop version of TT installed from a CD or downloaded to your own computer.  You pay once for the software and you can prepare multiple returns easily, and it has a “what if” feature that allows comparisons.

[Sam Hopi]

Thanks, some of factors of Community property laws Disregarded match to us no one knows how much earned. One has W-2 and the other has S-corp and business.

So what should I do when form 8598 pups up? Should I check any box to mention allocation not reported? Should I attach an agreement to be ok everybody has his/her income on his/her return? I can file my own income on 8958 and my wife share column for $1 and for her vise versa? Is this ok?

I read about 8958 somewhere: entries on this form no impacts on FED and state returns!!! I confused again . Other side, 8958 must be filed in Community property, right?

[DawnC]

On Form 8958, a couple lists individual sources of income for each of them, such as employers, banks that pay interest, stocks that pay dividends, capital gains and tax refunds.  The couple reports the total amount received from each source, then allocates a portion of the total to each person.

Form 8958 essentially reconciles the difference between what employers (and other income sources) have reported to the IRS and what the spouses will be reporting on their federal tax returns. Both spouses must include a copy of the form with their tax return.   From What is Form 8958?, click the link for full document.  

Tips for those filing separately in community property states can be found here.  

When filing a separate returns in California, each spouse reports the following:

• One-half of the community income (earnings from jobs and businesses (S-corps)
• All of their own separate income

Community income can include real estate, as well as salaries, wages and other payments you receive for services.  Community income is part of community property, which are assets or other property held in common by married couples in community property states.  California follows the rule that all assets acquired during a marriage are considered co-owned equally by each spouse.  This marital property includes earnings (community income), all property bought with those earnings as well as all debts accrued during the marriage.  

[Sam Hopi]

Thanks a lot. But wife's  w-2 copy and me  of IRS are different than the amount what we have after allocation so should each spouse adjustment on Schedule 1 and explain : because of 8958? I mean first should I make a jointly return then make a separate return? what is step by step procedure to make a separate return?

[DawnC]

This link gives the full instructions to prepare both MFJ and 2 MFS returns, so you can compare the different scenarios.   Be sure to do the state returns as well.   It is a bit tedious, but worth it in your situation.     There are also other links you may find helpful and the bottom of that help article.     The 8958 form will only be included in the MFS returns.  

Creating test accounts in the TurboTax Desktop/CD/Download product.  

See Entering Income Adjustments, Completing the Community Property Worksheet, and Finishing your Tax Returns sections in this link.   Click on the arrows to expand those sections for a detailed explanation of the steps.