I'm using H&R Block Tax Cut.
When you choose "Married Filing Separately", it asks "did you live apart for all of 2014".
What is the implication here? That is, how does that bit of information affect your tax situation?
Thanks,
There are several tax features that behave differently when filing MFS if you lived apart for all of 2014 than if you didn't.
A few things that come to mind are:
- The exclusion amount used in the taxability of social security worksheet
- The allowed exclusion amount for taxability of employer dependent care benefits
- (Not sure about this one) Whether the passive loss limitation is allowed
- others...
In certain community property states, living apart all year breaks the community and income becomes separate.
The rule in California is that income earned while the spouses are living apart without the intention to get back together is separate property. If they intend to get back together at some point it is considered community property.
True but it does not relate to the subject which was "why does the IRS ask if you lived apart all year" when you file married separate. In CA, the community ends on the date of separation if there is no intent to reconcile. No requirement to live apart all year. Of course this can create a mess if you split mid-year and want to file separately.
I probably should have been clearer in my reply. Federal tax law makes it a requirement to not share certain income that normally would have been community income if they did not live together for the whole year and meet certain other requirements such as not commingling their money. Effectively, the community is broken for federal law...... but not necessarily for state law. E.g., it is my understanding that if you meet the federal requirement to not share community income, then CA will follow the federal rule and no adjustment is necessary on the separate CA returns. This holds even if the couple believes they may reconcile but just want to file separately. Not true in Wisconsin. In WI, living apart all year and filing separate federal returns with income not shared will cause a big headache as WI does not conform to that federal rule. Unless you have some other WI exception to community income, you have to put the income back together and divide by two for your state tax return.
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