How do can I split dividend and capital gains if I file Married Separately?

[MaryK4]

If you file a separate return, you generally report only your own income, credits, and deductions.  You will have to source the income that produced the gains to determine who should report it.  For example, the spouse who purchased the stocks would report the capital gains or dividends associated. 

If you are in a community income state and it was community property you must divide it equally.

[KevinK]

I am filing MFS and have imported data from my Schwab 1099 for a joint brokerage account.  Now I want to claim 50% of the items (my wife will claim the other 50%).  Is there an easy way to accomplish this in TurboTax?

[Cynthiad66]

You will have to manually enter the amounts you would like to claim.  The 1099-DIV must be listed under only one social security number. So, that person would enter the full amount and then adjust as a nominee. The other tax filer can just enter the reduced amount.

Since the Form 1099-DIV is reported under your social security number, then it should be included on your tax return.  You could then subtract the amount from your return by showing it was nominee interest.

To do so within TurboTax, use these steps to revisit the interest section of your tax return:

• On the top row of the TurboTax online screen, click on Search (or for CD/downloaded TurboTax locate the search box in the upper right corner)

• This opens a box where you can type in “1099-DIV” (be sure to enter exactly as shown here) and click the magnifying glass (or for CD/downloaded TurboTax, click Find)

• The search results will give you an option to “Jump to 1099-DIV”

• Click on the blue “Jump to 1099-DIV” link

This will bring you to a summary of interest forms already entered.  If you have already entered the interest in your return, click Edit beside the one with the nominee amount.  If you have not already entered the interest in your return, keep reading for steps to take after entering the information. Follow these steps:

• After you click Continue when you have finished entering the information from your Form 1099-DIV, the next screen is titled “Tell us if any of these uncommon situation apply to you” 

• The second choice on this screen is “I need to adjust my taxable amount” 

• Check this box and click Continue

• Then you will see a screen titled “Report Interest adjustment”

• Enter the amount as a positive number and the reason for the adjustment.  This will make the proper entry on your Schedule B.

Also, take a look at the IRS Topic 403 – Interest Received for more details about the next step to take so that the actual owner of the dividends is properly notified. 

To strictly follow the next steps, a 1099 should be issued to your spouse to report the  dividend, but it may not cause any issues if she simply reports the interest on her tax return without the actual form issued in his name.

Also see Filing Tax Form 1099-INT for more information.

Per @AnnetteB

[SN29]

Come on Turbo Tax!  Your process for dividing income for MFS is way too convoluted, especially when considering how common this situation is.  Please get your programmers to make this easier!  Thanks to Cynthiad66 for explaining this difficult process!

[leo59]

Filing separately while joint accounts reported 1099-DIV to my ssn.

I understood the process of splitting dividends.  There 2 other important values on the form to split: "qualified dividends"  and "Total capital gain distributions".

For qualified dividends on line  1b could enter "Adjusted qualified dividends".  Should adjust qualified dividends amount be used?

What to do with "Total capital gain distributions"? How to adjust that amount for splitting?

I am not in community state, unfortunately.

Should enter combined adjustment amount for dividends and cap gain split on that form? TurboTax allows me to enter amount exceeding the amount on the dividends line.

Thank you.

PS. After playing with numbers, TurboTax does not allow the nominee amount to be larger than sum of dividends, nondividend distribution, and capital gain distribution. I wonder if what code does is computing percent of nominee amount relative to the  sum of those 3 values, and applies this percent to boxes 1-3 on 1099-DIV form. This is wild guess. Looking if use of 50% of that sum of 3 values is sufficient for proper reporting of joint account's 1099-DIV. Thank you again!

[DianeW777]

In your situation I suggest you enter only your amount on your tax return then physically nominee the other half to your spouse.  This allows each of you to report only your share of each type of dividend on each tax return.  When you have different types of dividends (ordinary and capital gain distributions or others) it becomes more complicated.

Nominee returns. 

Generally, if you receive a Form 1099 for amounts that actually belong to another person or entity, you are considered a nominee recipient. You must file a Form 1099 with the IRS (the same type of Form 1099 you received).  You must also furnish a Form 1099 to each of the other owners. 

File the new Form 1099 with Form 1096 (this is a transmittal for the 1099) by mailing to the Internal Revenue Service Center for your area. (Provided on the Form 1096)

• On each new Form 1099, list as the payer the person on the original form and the other owner, as the recipient. On Form 1096, list the person on the original form as the nominee filer, not the original payer (financial institution).  The nominee is responsible for filing the subsequent Forms 1099 to show the amount allocable to each owner.

The forms filed with the IRS should be the red copy so if you don't have a color printer, go to the IRS website and order the forms: 

• Form 1096 
• Form 1099-DIV

@leo59 

[leo59]

Thank you for your answer!

Sorry, did not understand "In your situation I suggest you enter only your amount on your tax return then physically nominee the other half to your spouse."

Do you propose to file 50% of reported dividends/cap gain? Like in community state? Will IRS flag missing amount then?

"Nominee" seems an expected way. It works and produces similar resulting tax as 50% physical reduction. Instructions said: "A spouse is not required to file a nominee return to show amounts owned by the other spouse." The only issue is that there is no indication on the form that nominee is a spouse. I could put it in box for "payer", but this looks strange to me. Seems to be form design issue for IRS, not Turbotax issue.

[GeorgeM777]

To follow-up on the post from @DianeW777, you should adjust your dividend to the amount you feel represents the amount you received as nominee.  If such amount is one-half, then go ahead and make that adjustment.  You need to keep your documentation so that if you are requested by the IRS to substantiate your nominee amount, you have the evidence you need to support your entries.  

From your prior post, it seems you know the TurboTax screen where you can make your nominee adjustment.  That screen, Do these uncommon situations apply?, is where you can adjust the dividend.  

Regarding issuing a 1099-DIV to your spouse, you are correct in that the IRS instructions for nominee income do not require such form to be issued to a spouse.  Presumably, if a married filing separately taxpayer adjusts their tax return to reflect nominee income, and that taxpayer does not file a 1099 because 1099s are required for all except a spouse, then it reasonable to assume that the income must have been received by the other spouse.  However, while no 1099 is required, you are not prohibited from giving your spouse a 1099-DIV reflecting the dividend you received as nominee which actually belongs to your spouse.

If you choose to prepare a 1099 for your spouse, enter the information on the form consistent with the form's instructions.  Given the IRS instructions, you do not need to indicate that the receiver of the income (your spouse) is your spouse.  

@leo59