married filing jointly or separately in CA


C

Ciprian

Hi,

taxact.com deluxe *estimates* me that we would be saving a bit by filing separately instead of jointly in CA (common property state). However, when I choose that option and try to file as "married filing separately" our tax jumps up significantly.

Has anyone else tried to convert a "married filing jointly" to a "married filing separately" tax return using taxact.com, and experienced similar behavior?

Thanks,
-C
 
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R

removeps-groups

taxact.com deluxe *estimates* me that we would be saving a bit by filing separately instead of jointly in CA (common property state). However, when I choose that option and try to file as "married filing separately" our tax jumps up significantly.

Has anyone else tried to convert a "married filing jointly" to a "married filing separately" tax return using taxact.com, and experienced similar behavior?
Because CA is community property, salary income is assumed to be split
50/50, in the absence of a prenup or postnup specifying separate
income. This means that each person's income will usually be the same
in California MFS returns. Furthermore, under MFS certain tax credits
and deductions are not allowed, which might explain the "our tax jumps
up significantly".

It could be a bug in TaxAct that it says one thing and does another.
Contact their tech support about it.
 
K

Katie in San Diego

Hi,

taxact.com deluxe *estimates* me that we would be saving a bit by filing separately instead of jointly in CA (common property state). However, when I choose that option and try to file as "married filing separately" our tax jumps up significantly.

Has anyone else tried to convert a "married filing jointly" to a "married filing separately" tax return using taxact.com, and experienced similar behavior?

Thanks,
-C


Generally your California filing status must be the same as federal.
You can't choose to file separately if you filed a joint federal
return unless one spouse is active duty military, or one spouse is a
full year nonresident and has no California source income.

Katie in San Diego
 
M

Mark Bole

Hi,

taxact.com deluxe *estimates* me that we would be saving a bit by filing separately instead of jointly in CA (common property state). However, when I choose that option and try to file as "married filing separately" our tax jumps up significantly.

Has anyone else tried to convert a "married filing jointly" to a "married filing separately" tax return using taxact.com, and experienced similar behavior?

Thanks,
-C
To add on to both previous comments...

You need to be more clear about which tax "jumped up" -- federal, or
California, or both? I am pretty sure TaxAct will not automatically
apply any community income splitting, although to not do so would
normally be incorrect. The program can't really do it, as only an
interview about each type of income can really determine what is
community and what is not.

There is now a third exception to California's "same filing status as
federal rule", namely for Registered Domestic Partners (RDP) and Same
Sex Married Couples (SSMC). They *cannot* file using the same status
for federal and state, except for Head of Household under some very
particular circumstances.
 
G

Gene E. Utterback, EA, RFC, ABA

Ciprian said:
Hi,

taxact.com deluxe *estimates* me that we would be saving a bit by filing
separately instead of jointly in CA (common property state). However, when
I choose that option and try to file as "married filing separately" our
tax jumps up significantly.

Has anyone else tried to convert a "married filing jointly" to a "married
filing separately" tax return using taxact.com, and experienced similar
behavior?

Thanks,
-C
Splitting a joint return into separate returns is tricky business and is
something that should not be attempted by the uninitiated (read that non
pro). I'm a tax professional, I pay big money annually for professional
grade tax software. My software often tells me that there may be some tax
savings by filing MFS instead of MFJ, but just a frequently that worksheet
fails to account for several things that actually happen when the return is
split.

Frequently software will indicate that MFS will save money. But it may not
properly account for how certain items get split. For example, if the
taxpayer makes $100K and the spouse makes $100K its a fair assumption that
their mortgage interest and real estate taxes should split 50/50, assuming
both names are on the mortgage and the deed. But what about when the
taxpayer makes $200K and the spouse makes $20K and both names are on the
mortgage and deed - does the software allocate these items 50/50 or based on
income? What if the children claimed on the return are the children of the
lesser paid person from a prior marriage? And if the income is really
skewed, and considering both spouses must itemize if either itemize, the
itemized deductions of the lesser income spouse can, and frequently does,
come into play. Then consider that some deductions and credits are
disallowed when filing separate, and which frequently is NOT reflected in
the software's analysis of filing separately UNTIL the returns are actually
split) and very quickly it can result in much less of a benefit than
originally expected. Lastly, as a professional, we factor in the cost of
preparing two returns - the require twice as much work and take twice as
much review time. So even if a client can save money by filing separately,
if the cost for the extra work and second return isn't significantly more
than the savings from filing MFS then it doesn't actually return a better
net result to the client.

FWIW - we check EVERY joint return to see if MFS would be better. We do
about 400 individual returns and we usually get 1 return a year where MFS
works out to a better net result. So I won't tell you not to check it out,
you should - but don't hold your breath thinking you'll be way better off.

Gene E. Utterback, EA, RFC, ABA
 
R

removeps-groups

Splitting a joint return into separate returns is tricky business and is
something that should not be attempted by the uninitiated (read that non
pro).  I'm a tax professional, I pay big money annually for professional
grade tax software.  My software often tells me that there may be some tax
savings byfilingMFS instead of MFJ, but just a frequently that worksheet
fails to account for several things that actually happen when the return is
split.
This is a software problem.
Frequently software will indicate that MFS will save money.  But it may not
properly account for how certain items get split.  For example, if the
taxpayer makes $100K and the spouse makes $100K its a fair assumption that
their mortgage interest and real estate taxes should split 50/50, assuming
both names are on the mortgage and the deed.  But what about when the
taxpayer makes $200K and the spouse makes $20K and both names are on the
mortgage and deed - does the software allocate these items 50/50 or based on
income?  What if the children claimed on the return are the children of the
So how is the mortgage interest deduction split in this case?
lesser paid person from a prior marriage?  And if the income is really
skewed, and considering both spouses must itemize if either itemize, the
itemized deductions of the lesser income spouse can, and frequently does,
come into play.  Then consider that some deductions and credits are
disallowed whenfilingseparate, and which frequently is NOT reflected in
the software's analysis offilingseparately UNTIL the returns are actually
split) and very quickly it can result in much less of a benefit than
originally expected.  Lastly, as a professional, we factor in the cost of
The software is supposed to take care of these details. As long as
the software is not so good, you'll have to do the work and should
charge a lot more. But eventually the software will do all the work,
but software may be a little more expensive, and thus your prices
would be only a little more expensive.
 
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K

Katie in San Diego

This is a software problem.


So how is the mortgage interest deduction split in this case?


The software is supposed to take care of these details.  As long as
the software is not so good, you'll have to do the work and should
charge a lot more.  But eventually the software will do all the work,
but software may be a little more expensive, and thus your prices
would be only a little more expensive.

I don't believe software will EVER be a substitute for a qualified,
knowledgeable, educated tax professional. Software only knows what
you tell it.

Katie in San Diego
 
G

Gene E. Utterback, EA, RFC, ABA

This is a software problem.
BULL - software will NEVER replace a real professional. True, it makes out
jobs easier, but reliance on software is a poor argument at best.

So how is the mortgage interest deduction split in this case?
By using the brain and professional expertise of the professional preparing
the return!
The software is supposed to take care of these details. As long as
the software is not so good, you'll have to do the work and should
charge a lot more. But eventually the software will do all the work,
but software may be a little more expensive, and thus your prices
would be only a little more expensive.

AGAIN - BULL - The logical extrapolation of your argument is that pencils
are responsible for misspelled words, hammers are responsible for crooked
walls and car manufacturers are responsible when cars speed on the highway.

MAKE NO MISTAKE - the person signing the return is ultimately responsible
for the information contained on the return. If they can't do it and go to
a pro THEN THE PRO IS RESPONSIBLE. As professionals we owe a duty to our
clients, to each other and to the system as a whole to know what we're
doing. My grandfather used to say "a set of tools does NOT a journeyman
make" and he was right. ANYONE, and I mean anyone - from the HMFIC at
Deloitte to the "wet behind the ears kid" at HRB - who relies on a tool to
make sure the job is done is right is an idiot and they deserve everything
that happens to them.

ADDITIONALLY, as a tax and accounting professional I am both personally and
professional sick and tired of trying to compete with every 2-bit twit that
thinks a copy of TT Deluxe, or any of the other BOXED products, from Staples
or Office Depot or Wal-Mart makes the comparable to me. THESE are the
people who are hurting not only our professional but our clients as well.
Each and every one of these people who buy a computer and some software and
who do returns for next to nothing are accomplishing two primary things -

First - they are making it difficult for real professionals to compete in
price;

Second - they are doing harm to the profession as a whole.

Every shortcut they take in delivering a substandard product hurts the
consumer and the profession. This is why I am seriously considering
reporting anyone I find who is NOT complying with the registration rules.

Gene E. Utterback, EA, RFC, ABA
 
R

removeps-groups

BULL - software will NEVER replace a real professional.  True, it makes out
jobs easier, but reliance on software is a poor argument at best.
True, I didn't say it would replace a professional. Just in this
specific case of TaxAct giving the wrong calculation is a software
problem -- the original post said the software analyzed the MFJ return
and said you would save XYZ by filing MFS, but when you instruct the
TaxAct software to actually create the two separate returns, it then
calculates the the total tax is more. This is clearly a bug in the
software.

Both you and Kate are taking my simple statement out of context.

By using the brain and professional expertise of the professional preparing
the return!
So what's the answer. Is it 50/50 in CA, or the amount actually paid
by one spouse in non-community-property states?
 
D

D. Stussy

True, I didn't say it would replace a professional. Just in this
specific case of TaxAct giving the wrong calculation is a software
problem -- the original post said the software analyzed the MFJ return
and said you would save XYZ by filing MFS, but when you instruct the
TaxAct software to actually create the two separate returns, it then
calculates the the total tax is more. This is clearly a bug in the
software.

Both you and Kate are taking my simple statement out of context.



So what's the answer. Is it 50/50 in CA, or the amount actually paid
by one spouse in non-community-property states?
Also note in California: Certain things might not be 50/50 as they could
be excluded from community property (which is only a default assumption).
Gifts, inheritances, and property prior to the marriage that is not
comingled (and including the income thereon for all 3 categories) need not
be CP.

During my IRS days, I remember seeing title deeds for rentals which said
"Mr. X, a married man, as sole and separate property." It was rare, but it
did happen.
 
G

Gene E. Utterback, EA, RFC, ABA

On Apr 26, 10:07 am, "Gene E. Utterback, EA, RFC, ABA"
SNIPPED


True, I didn't say it would replace a professional. Just in this
specific case of TaxAct giving the wrong calculation is a software
problem -- the original post said the software analyzed the MFJ return
and said you would save XYZ by filing MFS, but when you instruct the
TaxAct software to actually create the two separate returns, it then
calculates the the total tax is more. This is clearly a bug in the
software.

Both you and Kate are taking my simple statement out of context.
My apologies to removeps-groups if my comment came off as offensive, it was
not intended that way. And while this is not an excuse, it is an
explanation of my thinking (perhaps more of my attitude) - as a tax pro with
nearly 30-years in the business one of the most frustrating things I face is
the client, or prospective client, who thinks software can replace
professional judgment, it can't.

I pay $5 annually for tax software - ProSeries Professional - and it always
gives me a different assessment on the MFS v. MFJ worksheet than I get when
I actually split the returns. This is because of the algorithms used and
how most all information is entered. I believe it to be more of a logistics
problem than a software problem, let me elaborate.

Most of the software I've looked at allows you to "flag" every item for
either the Taxpayer, Spouse or Joint. Items tagged T or S get split
properly, but J items get split 50/50. So when I enter the taxpayer's W-2
($180,000) and the spouse's W-2 ($20,000) and mortgage interest is ($50,000)
the software gives the taxpayer & spouse their correct wages and $25K of
mortgage interest each. How can the spouse pay $25K of mortgage interest
when her income is only $20K. But that is what the systems show when you
look at the MFS v. MFJ worksheet in the joint return.

If you want a different result you have to enter the info differently when
you do the joint return. For example, while they have ONE 1098 for $50K I
COULD enter it as two separate 1098s from the same payer and flag $45K of
interest to the taxpayer and $5K of interest to the spouse. This would give
me a more realistic looking result on the MFS v. MFJ worksheet in the joint
return. But most of us (tax pros) know that very few couples actually
benefit from MFS status and the ones that might benefit are usually
identifiable to us (tax pros).

For example, in the above scenario lets add in $15K or medical expenses.
There is NO deduction on the joint return because it doesn't break through
the floor (new or old). But as a trained professional I know if they file
MFS and the spouse actually paid those expenses from her funds then we can
get a deduction for them. Recognizing this when I come across it allows me
to handle the input differently while I'm putting the info into the system.
And I get a more favorable result.

But that brings us back to where this conversation started - software will
never be a suitable replacement for professional experience and judgment.
Further the world at large needs to learn to appreciate that while most
things can be done by anyone, you cannot expect a professional result by a
DIY'er on complex matters. I'm sure there are few accountants out there
that know how to cut a compound angle on a roof joist - I "know" how its
done, I understand the math. But I'm not foolish enough to think I could do
it and have the finished product look or be as good or last as long as if it
were done by a professional.

Gene E. Utterback, EA, RFC, ABA

P. S. - I once had a prospective client ask me "why do you charge so much,
all you do is paperwork?"
 
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T

Tom Russ

Most of the software I've looked at allows you to "flag" every item for
either the Taxpayer, Spouse or Joint.  Items tagged T or S get split
properly, but J items get split 50/50.  So when I enter the taxpayer's W-2
($180,000) and the spouse's W-2 ($20,000) and mortgage interest is ($50,000)
the software gives the taxpayer & spouse their correct wages and $25K of
mortgage interest each.  How can the spouse pay $25K of mortgage interest
when her income is only $20K.  But that is what the systems show when you
look at the MFS v. MFJ worksheet in the joint return.
You know, I've always thought that entering the information for a
joint
return and then splitting it into two separate returns was backwards.

It would make more sense to, in effect, do the MFS entries separately
and automatically create the joint return. As you point out in the
part
of your reply I omitted, there are important decisions to make about
how to split certain "joint" items on separate returns. And that
element
of judgement or choice cannot be made automatically.

So it seems that it would make more sense to do the separate returns
and have the joint return automatically combine the elements from the
separate returns since the combination really is an automatic
operation
and doesn't require any judgement or choices.
 
A

Arthur Kamlet

You know, I've always thought that entering the information for a
joint
return and then splitting it into two separate returns was backwards.

It would make more sense to, in effect, do the MFS entries separately
and automatically create the joint return. As you point out in the
part
of your reply I omitted, there are important decisions to make about
how to split certain "joint" items on separate returns. And that
element
of judgement or choice cannot be made automatically.

So it seems that it would make more sense to do the separate returns
and have the joint return automatically combine the elements from the
separate returns since the combination really is an automatic
operation
and doesn't require any judgement or choices.
I think one would be a glutton for punishment to opt for that approach.

It's one thing to build a MFJ tax return, expecially when most MFJ
returns stay MFJ. Being an Ohio preparer, I do quite a few MFS
returns, and much prefer building just one tax return, then seeing
how MFS could be. As Gene said, there are decisions to be made, and
you don't know where to make those decsions until seeing the MFJ
return.

Simple example: Couple with unbalanced incomes and one young child.

You might think with unbalanced incomes, the higher income parent should
claim the kid. But that could mean no child tax credit!

And you might think the higher income parent should be allocated most of
the deductions, but AMT frowns on high income taxpayers claiming
property taxes, for example. So it really is necesary to see the MFJ
results first and then have the flexibility to allocate.

Those preparers outside of Ohio might question a couple allocating
deductions coming from a joint account, or income coming into a
joint account, but in years of working MFS issues with IRS, it's a
given that allocation in this manner is the norm.

And one might wonder why Ohio is such a popular state for MFS filings.
That stems from several things:

i) Ohio filers must use the same filing status used for federal.

ii) Ohio has a single tax table regardless of filing status, and
Ohio income tax steeply increases with income. There's a
small joint filing credit which doesn't come close to helping
reduce the extra tax caused by joint Ohio filing.

ii) Ohio pension recipients receive up to $200 of tax credit per
tax retun, and a $50 senior credit per tax return.


All these combine so even if MFJ is slightly better for the federal
return, Ohio makes it very worthwhile to file separately.
 
S

Seth

Arthur Kamlet said:
You might think with unbalanced incomes, the higher income parent should
claim the kid. But that could mean no child tax credit!

And you might think the higher income parent should be allocated most of
the deductions, but AMT frowns on high income taxpayers claiming
property taxes, for example. So it really is necesary to see the MFJ
results first and then have the flexibility to allocate.

Those preparers outside of Ohio might question a couple allocating
deductions coming from a joint account, or income coming into a
joint account, but in years of working MFS issues with IRS, it's a
given that allocation in this manner is the norm.
If arbitrary allocations are allowed, it would seem that software
could do a good job of optimizing the allocations.

Seth
 
M

Mark Bole

I think one would be a glutton for punishment to opt for that approach.

It's one thing to build a MFJ tax return, expecially when most MFJ
returns stay MFJ.
Art.... what's the other thing? ;-)

With all due respect, I lean toward what Tom says. There is remarkably
little duplicate data entry involved in creating the separate returns
first, mostly just the residence address.

Then, as Tom says, the merge can be automated. One benefit of this is
that everything gets tagged automatically in the merge as T(axpayer) or
S(pouse). With that, you can tweak things and use the software to
re-split the return into separate returns for comparison purposes. Good
software will allow you to adjust certain payment, deduction, and
carryover amounts (by dollar or percent) before the split, to help
address some of the concerns about using professional judgment.

Unlike Ohio, we in California have a different reason for seeing certain
scenarios where MFS-like treatment is optimal, namely the new IRS chief
counsel advisory that requires RDP/SSMC (reg. domestic partner/same-sex
married couple) in California, Nevada, and Washington to file separately
yet apply community rules for splitting income and deductions. This is
essentially the same as filing MFS but with the technical difference of
checking the "single" box on the federal filing status, and all that
entails.

Software can be your friend. One professional package in particular
that I use provides the ability to freely go back and forth between
"merge" and "separate" as many times as you want. This is used in the
following CA filing scenario:

1. Create separate "standard" federal returns for RDP/SSMC filers.

2. Merge returns from (1) into a MFJ return.

3. Use the software's "MFS vs. MFJ" optimizer on the return from (2) to
compare both scenarios, and eventually to create two separate returns
which reflect your splitting decisions (compare to step 1, which does
not reflect any splitting). Details of how to allocate and report
community income omitted here (but here's a hint -- be sure that
community capital gain income is taxed correctly on both returns).

4. Finally, create the required California married (normally joint)
return using the two final federal returns from (3).
 
S

Stuart A. Bronstein

Mark Bole said:
Unlike Ohio, we in California have a different reason for seeing
certain scenarios where MFS-like treatment is optimal, namely
the new IRS chief counsel advisory that requires RDP/SSMC (reg.
domestic partner/same-sex married couple) in California, Nevada,
and Washington to file separately yet apply community rules for
splitting income and deductions. This is essentially the same
as filing MFS but with the technical difference of checking the
"single" box on the federal filing status, and all that entails.
Also in California even heterosexual couples can be domestic partners
if one of them is over age 62. So for those who file separately they
may save a little in taxes by divorcing and becoming domestic
partners (not to mention the social security benefits).
 
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G

Gene E. Utterback, EA, RFC, ABA

SNIPPED and corrected!
I pay $5 THOUSAND annually for tax software - ProSeries Professional.
Gene E. Utterback, EA, RFC, ABA
 
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K

Katie in San Diego

SNIPPED and corrected!


Gene E. Utterback, EA, RFC, ABA

Whew! I wondered how you were getting it so cheap! <G>

Katie in San Diego
 

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