split 1099 income when filing separately

[harryhk]

My wife and I plan to file separately for tax savings since she has lower income than mine. However, I have some stock investment gain under the my stock account. Can I put the gain into her filing to save tax since she is in lower tax bracket? 

The stock account is an individual account, but since we are marriage, should it be co-owned by both of us? 

Thanks. 

[mgarry3416 · Accepted solution]

The short answer is no.  

The stock sale needs to be reported by the person owning the investment account.  Doesn't matter in community property state.  

Enter your information (all of it) in TurboTax and let TurboTax decide whether to file MFJ (married filing joint) or MFS (married filing separate)  You usually come out ahead when you file MFJ  

Those who file MFS usually have marriage problems, one spouse does not agree with the return or one spouse makes a million or more and the other only a few thousand.  If your making a million or more you need to see a tax professional and not use TurboTax.  And yes I am a Tax Professional 

[KrisD15]

No, your income cannot be claimed on her separately filing return. 

In almost all circumstances, filing one Married Filing Jointly results in a better tax rate than filing two Married Filing Separately returns. 

There are several credits that cannot be claimed on Married Filing Separately returns. 

You could use TurboTax and compare the total tax you both would owe by filing each way with doing test returns in the program. Then, choose the option that is best and file that way. But as I say, 9 out of 10 times, it is advantageous to file Jointly. 

@harryhk

[macuser_22]

If you file MFS (Married Filing Separately) keep in mind that there are several limitations to MFS.  Married filing Jointly is usually the better way to file.
 
A few of those limitations are: (see IRS Pub 17 for the full list

https://www.irs.gov/pub/irs-pdf/p17.pdf page 21

1. Your tax rate generally is higher than on a joint return.
2. Your exemption amount for figuring the alternative minimum tax is half that allowed on a joint return.
3. You cannot take the credit for child and dependent care expenses in most cases, and the amount you can exclude from income under an employer's dependent care assistance you are legally separated or living apart from your spouse, you may be able to file a separate return and still take the credit. For more information about these expenses, the credit, and the exclusion, see chapter 32.
4. You cannot take the earned income credit.
5. You cannot take the exclusion or credit for adoption expenses in most cases.
6. You cannot take the education credits (the American opportunity credit and lifetime learning credit) or the deduction for student loan interest.
7. You cannot exclude any interest income from qualified U.S. savings bonds you used for higher education expenses.
8. If you lived with your spouse at any time during the tax year:
a. You cannot claim the credit for the elderly or the disabled, and
b. You must include in income a greater percentage (up to 85%) of any social security or equivalent railroad retirement benefits you received.
9. The following credits and deductions are reduced at income levels half those for a joint return:
a. The child tax credit,
b. The retirement savings contributions credit,
10. Your capital loss deduction limit is $1,500 (instead of $3,000 on a joint return).
11. If your spouse itemizes deductions, you cannot claim the standard deduction. If you can claim the standard deduction, your basic standard deduction is half the amount allowed on a joint return.

- If you live in a community property state you must allocate community income between both spouses..
-
- Community property states.   If you live in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin and file separately, your income may be considered separate income or community income for income tax purposes. See Publication 555. http://www.irs.gov/publications/p555/index.html

 
See this TurboTax article for help with this.
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

[harryhk]

I have a follow up question. What if the stock account is owned by both of us? Then can I report all the gains under my wife's filing? Thanks. 

[harryhk]

I have a follow up question. What if the stock account is owned by both of us? Then can I report all the gains under my wife's filing? Thanks. 

[macuser_22]

It can be reported on ether separate return or split unless you live is a community property state, then it must be split according to the community property laws of your state and Federal laws.

[harryhk]

thanks for the reply. We live in WA. Does stock gain belong to community property?  

[macuser_22]

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@harryhk wrote:

thanks for the reply. We live in WA. Does stock gain belong to community property?  

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In most cases ALL income earned while married in a community property state is community income if jointly owned.   There are exceptions for married spouses that live apart for the entire year.

Allocating community property in a community property state can be vary complicated if special circumstances exist and might need a tax professional that knows the laws of your state which are different in each community property state.   The IRS rules defer to state law.  It is usually much better to file jointly if at all possible.