Regarding married filing separately, do you enter half of the combined total community property wages on the w2 section of the 1040 or only enter your own wages on 1040?

[WendyN2]

Yes, that definitely would cause a difference. From our discussion(s), I believe you've done everything correctly and therefore should be all set. 

[waveheatin]

KrisD15,

You really saved me, just one little question.

Following your instruction, I have come to "other tax situation', also found the community property screen. I did (1) the income adjustment, (2) tax withholding adjustment, Now I could not figure our how to do (3) deduction adjustment (we do standard deduction, easy, but we have some QBI . Let see the QBI is $3000 in total. How or should we split it to $1500 for each of us. Or On which adjustment screen to do QBI adjustment?

Again, you are such a life saver. Thank you enormously!

Wave

[BillM223]

"Let see the QBI is $3000 in total. How or should we split it to $1500 for each of us."

QBI (the deduction) should follow the income that generated it.

Do you know what income was eligible for QBI? If only one of you had income that qualified for QBI, then the entire $3,000 should go to that person. Otherwise, make some notes for your tax file to try to establish a ratio of one spouse's QBI income to the other spouse's and allocate it that way. Just write down what you did and why so that if anyone ever asks you, you have a ready answer (ready answers at the least tell an auditor that you thought about it).

[waveheatin]

BillM223,

Thank you so much.  Sorry I was not very clear in my original message. We have $3000 QBI Deduction (20% of QBI)  from our joint filing. Now we do married-file-separately. We now have $3000 QBI deduction in each of our return (total $6000). So we need to make some adjustment so that our total QBI deduction is still $3000 together, (not $3000 each) . There are two adjustment screens in Turbo tax, one for income adjustment, one for tax withheld adjustment. There isn't a dedicated adjustment screen for deductions. 

So my question is in which one of the two adjustment screens I should adjust the QBI deduction. I am now doing it in the income adjustment screen (adjusting my wages, dividends, and deductions, altogether in one lump sum. )

I hope my way is the intended way by Turbotax.

Any thought?

Thank you all so much! Have fun doing tax. It really should be simplified. I cannot imagine most people will do it right every year!

Wave

[BillM223]

"I am now doing it in the income adjustment screen (adjusting my wages, dividends, and deductions, altogether in one lump sum. )"

Yes, since QBI is an income deduction, a mistaken income adjustment should be corrected in the income adjustment screen. Just put a single entry for each person (if you are splitting it) with a label like "Adjustment for excess QBI" and the positive amount to make it correct.

Then write a note to yourself on why you did what you did (you had to work around a difficulty in the tax software) and put it in your tax file, in case anyone ever asks.

"Have fun doing tax." Thank you! We all enjoy the tax season that never ends (held over for another year 😉 ).

[nataliacanada]

Could someone kindly confirm -

RDP in community property state, this is what I've concluded I should be doing re: allocating community property.

1) create two individual federal returns, 2) Create Two columns in a spreadsheet, Partner 1, Partner 2 (similar to form 8958).

Community income = sum across {wages from W2 + taxable interest + oridinary dividends} across both partners.

Community deductions = sum across {allowed capital gain/loss, HSA contribution, qualified business income or loss, donations to charity, mortgage interest allowed, real estate taxes, state and local taxes, vehicle registration fees}. These have to be based on what Turbotax summarizes within each individual's federal summary given some of these can max out. 

Community property = Community income - community deductions. Divide by two. Is that correct? That community property then needs to be adjusted in the Community adjustments screen for each partner (addition or subtraction). Submit alongside form 8958. 

Is that correct, or is the community property adjustment just sum across {wages from W2 + taxable interest + oridinary dividends} across both partners, and then deductions take place following? 

[RobertB4444]

Sum them separately - income gets added up and then divided by two and entered and then deductions get added up divided by two and then entered.  The net total is the same either way.

@nataliacanada 

[nataliacanada]

Is it income - deductions that's being asked for in the 'community property income adjustments' screen, or is it just income? 

[DMarkM1]

The income adjustment box is just income. You should add up all the community income and divide by 2.  If the answer is lower than your actual income then you need an addition to your income for community property.  

The deductions are handled as normal in your actual return.  Either you both are using standard deduction or both using itemized.  If itemized, you will enter only your portion of your itemized deductions in the "Deductions and Credits" section of your return. 

[nataliacanada]

Thank you. Is income just wages + dividends + taxable interest - capital losses - HSA contribution? Would that indicate both partners can take up to $3000 loss each. i.e. line 11, adjusted gross income, on the 1040 form should be the relevant line, correct? 

[nataliacanada]

From reading here, it leads me to think that capital losses on separate property (i.e. held in one name only, acquired pre-RDP) can be incurred by each partner. I believe taking line 11 adjusted gross income from the federal 1040 across both provides the community income. The one adjustment I had on my end was reduction in income given HSA contribution.

 https://www.irs.gov/pub/irs-pdf/p555.pdf

[BillM223]

If your community property state is California, then throw away the HSA "deduction" - it's not valid in California. In California, the HSA is just another investment account with no special tax benefits.

@nataliecanada

@nataliacanada

[nataliacanada]

Thank you for the response!

Wouldn't the deduction be valid for the federal return, so shouldn't it be 'thrown away' for the MFJ state return (done automatically by TT) but considered for / taken out against income to get adjusted gross income as part of the federal single return?

[ThomasM125]

The HSA deduction is an adjustment to federal income to arrive at adjusted gross income. It can be family or indivual coverage though. If it is family coverage, it would get split equally between spouses for community property income rules in most states, may not be so if it was just individual coverage.