Handling dividends and interest when married filing separately

[ari1123]

We are married filing separately and live in NJ, which is not a community property state. This is my first time filing separately, so I wanted to better understand how to handle dividends/interest from our accounts when filing separately.

For an account which is only under one of our names, does all income from that account need to be entirely on the named spouse's return, or can some or all of it instead be filed on the other spouse's return?

For an account which is under both of our names, I see that the 1099 only has one of our social security numbers on it.  Can I nevertheless put all the dividend and interest income from that joint account on the return for the spouse whose social security number is not on the 1099?

Are the rules (for how income can be split between the returns) different for the NJ return versus the Federal return, or can I just rely on TurboTax to automatically copy all the numbers from Federal->NJ?

What is the best way to indicate on the Schedule B (e.g., interest and dividends sheet) that I am removing the dividend and interest income from that return and instead putting it on the spouse's return? Do I indicate it as a "Nominee Distribution," which is what TurboTax puts on the form if (when adjusting the interest/dividends originally imported from the 1099) I select "I received all or part of these dividends for someone else", or is it better to select "other," or should I just manually type something into the form such as "dividends from joint accounts taxed on spouse's return"?

[rjs]

If the account is in one name, the income belongs entirely to that person, and has to all be reported on that person's tax return. You can't split it.

If the account is jointly owned, use the "Nominee Distribution" procedure as TurboTax does it on Schedule B. There is no need for any additional explanation.

[rjs]

The New Jersey return will just copy the amounts from the federal return. TurboTax will take care of it.

[Mike9241]

I want to point out while Turbotax has a section for nominee amount it may not work correctly 

example1099-DIV entered

line 1a 20000 divs

line 1b 10000 qualifying

line 2a  5000 capital gain

line 5 10000 199a

line 7 5000 FTC

line 7d 20000 foreiggn dividends

line N  10000 nominee because I wanted a 50/50 split

what I ended up with

taxable divdends 12000 rather than 10000

qualified dividends 6000 rather than 5000

capital gain dividends 3000 rather than 2500

1099a/qbi divdends form 8995 10000 instead of 5000

ftc  and foreign dividends  5000 ftc rather than 2500 and 20000 foreign dividends rather than 10000

 so check what's actually is appearing vs what should be

another thing the IRS actually wants you to file  1099s reporting the nominee amounts 

[NCperson]

@ari1123 unless this relates to repayment of student loan debt, can I ask why you are filing Separate?  

96% of married couples file Joint.  I suspect that last 4% can't agree to sign the same tax return (marital issues) or are naive on how this works.  Congress only passes laws that protect the sactity of marriage; i.e. they do not pass laws that incent you to file SEPARATE. 

I have NEVER seen it work out that filing SEPARATE makes financial sense, unless it is because the lower earning spouse is on a student debt repayment plan.  

So why are you filing SEPARATE?

[taxlady28]

You are so correct.  When a couple shows me how they get more money filing separately, it has always been because they did it wrong and one claimed the deductions and the other took standard.   When both claim the same way it has never come out that they do better MFS.

[NCperson]

@taxlady28 the situation I normally see if a couple filing MFS because one of them owes back taxes or back child support..... and they are unaware of the injured spouse process.  

I also work with a lot of senior - some of whom are later-in-life recently married.  They think they are going to keep their finances separate, and that incldues their tax returns..... until I explain to them that filing MFS (when living together) and receiving social security automatically makes 85% of their SS income taxable - they change their tune in a hurry - had 3 of them last winter!

[ari1123]

Thanks rjs and Mike9241 for your helpful answers!

@Mike9241  - regarding your point about needing to file a 1099 to the IRS for a nominee distribution, I have no idea how to do that, and this is for our 2022 return, so it's probably too late anyway.  I had hoped that spouses with a joint account can divide up interest/dividends from that account on their separate returns as they choose (in non-community-property states), without one spouse explicitly needing to give the other a 1099-INT.  For example, https://www.irs.gov/instructions/i1040sb says (bolding mine):

If you received interest as a nominee, you must give the actual owner a Form 1099-INT (unless the owner is your spouse) and file Forms 1096 and 1099-INT with the IRS. For more details, see the General Instructions for Certain Information Returns and the Instructions for Forms 1099-INT and 1099-OID.

Am I missing something here?  Thanks!