I have decided to leave CA after living here for the better part of 45 years. My wife is staying in CA and working in CA while I permanently move to TN and work remotely for a company in WA. I will come back and visit her from time to time and she will visit me in TN. Neither of us will be in our respective states for less than half of the year (won't be in the spouse's state for more than a few months each).
Given our living and working situation, is it best to file separately?
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Whether to file jointly or separately can be a complex decision, particularly when different states are involved.
When you live in a community property state, such as California, and file separate returns, you each must report 50 percent of your spouse's income and half of income generated by community assets, plus all of your separate income. When you live in a community property state and file separate returns, you generally each must report 50 percent of your spouse's income and half of the income generated by community assets, plus all of your separate income. The IRS has an allocation worksheet to simplify your calculations in Publication 555 Community Property. You also have to decide who will claim dependent children.
Please see this TurboTax tips article and this help article for more information.
If community property law does apply to you, married couples in community property states can look at their tax situation under both joint and separate filing options to determine which version saves them the most. You can do this in TurboTax Online by setting up returns under each scenario.
Filing a joint return could be less complex and qualify you for tax credits. The Internal Revenue Service (IRS) created Form 8958 to allow couples in community property states to correctly allocate income to each spouse that may not match what is reported to the IRS. See this article for more information on Form 8958
If you are filing a joint return, you don't need to do a community property split.
If you are not separating from your spouse but just choosing to have another residence in the state where you work, California could still consider you a resident for tax purposes because you are maintaining ties with your California residence. If one spouse is a resident of California and the other is a nonresident, then the California: Resident may be required to report income earned outside of California. Nonresident may be required to report income earned by the resident spouse. Visit Guidelines for Determining Residency Status (FTB Publication 1031) for more information.
Tennessee has no personal income tax, but a California resident would be taxed on income from all states.
Depending on additional factors not stated, such as business or real estate holdings, and dependents, you might wish to consult an attorney before deciding how to file.
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