married filing jointly or separately in CA

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.

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.

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.

filing separately" tax return using taxact.com, and experienced similar behavior?

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

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.

filing separately" tax return using taxact.com, and experienced similar behavior?

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.

"Ciprian" wrote in message news: snipped-for-privacy@glegroupsg2000goo.googlegroups.com...

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

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

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

By using the brain and professional expertise of the professional preparing the return!

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

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?

professional

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.

SNIPPED

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?"

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.

If arbitrary allocations are allowed, it would seem that software could do a good job of optimizing the allocations.

Seth

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).

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).

SNIPPED and corrected!

Gene E. Utterback, EA, RFC, ABA

messagenews:ipca56$lb4$ snipped-for-privacy@dont-email.me...

Whew! I wondered how you were getting it so cheap!

Katie in San Diego