community property state and form 8958

[dcheitel]

If im clear on what i have seen on the board.......

to figure out the additions and subtractions I would add my wifes income and mine together for example i make 50000 and she makes 30000 total is 80000 /2 = 40000. since i make more than her I would subtract 10000 from my income and she would add 10000 to hers. the same would hold true for deductions.

my question comes in as to where to enter this on the return? do I just go in and change my w2 and lower my wages by 10000? and then include form 8958 so the irs knows why i did that? or another way of phrasing this would be, I enter the 10000 in the subtract box in turbo tax? where does this subtraction show up on the return?

if im correct let me know, if not tell me what is.

thank you much

Dave

[ReneeM7122]

No, you can't change the information on your W-2.  In a community property state where two spouses are filing Married Filing Separately, begin by completing a MFS federal tax return for you and your spouse.  You'll need the amounts for different income categories, tax amounts, and all tax payments for each of you. If one of you plans to itemize deductions, the other person must itemize as well. Otherwise, you'll both have to use the Standard Deduction.

You are correct that you'll need to use Form 8958 to determine the allocation of tax amounts between married filing separate spouses or registered domestic partners (RDPs) with community property rights.  TurboTax will guide you through the process.  This form is intended for individuals who: 1. Are subject to community property laws, and 2. File separate federal income tax returns.

Here is how to enter the adjustments for a community property state:

First, use your community property state rules to determine what adjustments you expect to enter in TurboTax. Often one return has an addition to income and withholding, while the other will have a reduction (subtraction) to income and withholding.

1. Sign in to TurboTax and open or continue your return. 
2. Search for community property and select the Jump to link.
3. On the Community Property Income screen, select Yes and follow the instructions to enter any income adjustments.

Complete the community property worksheet

After you've told us your income adjustments, you'll have to fill out the community property worksheet. The worksheet shows how the income on this tax return compares with the other taxpayer's return.

Your community property worksheet will appear right after you complete your income adjustments.

If you can't find the worksheet:

1. Sign in to TurboTax and open or continue your return. 
2. Search for community property worksheet and select the Jump to link.

We’ve added clear instructions directly on the worksheet to guide you through filling it out correctly.

Once you've determined how to split both your combined income and tax withholding between you and your spouse, continue with your state tax return (if applicable).

You may not be able to e-file, in which case TurboTax will guide you through the steps to print and mail your return.

[dcheitel]

Hi thanks for your reply. yes I understand where to enter it in turbo tax, I was just trying top understand how that adjustment or allocation ultimately shows on the 1040

[Cynthiad66]

Ultimately, the numbers are shown on the State returns.  This will be a worksheet that is included with the federal return.  In order to see this worksheet, go to Print/View and select return with all worksheets and forms.  Look for Form 8958 to see the computations.

USE THIS LINK TO SEE THE FORM USED IN THE CALCULATION:  Use Form 8958 to determine the allocation of tax amounts between married filing separate spouses or registered domestic partners. (RDPs) with community

FORM FOR COMMUNITY PROPERTY STATES

[wegolfers]

I have an related MFS Spouses Living Apart All Year (MFS SLAAY) question:  "If we already know we fully meet the MFS SLAAY criteria of Pub 555, do either one of us, or both of us, still need to bother to complete and submit the 8958 or not?"  

If in TurboTax we have already checked the box that we have lived apart all yeat then it seems extremely odd to complete the 8958 with "$0" (plus or minus) adjustments in every area. 

Accurate direction or precedence please...thanks...

[DMarkM1]

No. If you meet all four criteria the spouses lived apart all year exception from Publication 555 (extracted below) and therefore there is no community property to divide, then you will not need to complete the form 8958.  You would select "No" when asked, "Do you have any community property adjustments?"  

" Spouses lived apart all year exception:

1. You and your spouse lived apart all year.
2. You and your spouse didn't file a joint return for a tax year beginning or ending in the calendar year.
3. You and/or your spouse had earned income for the calendar year that is community income.
4. You and your spouse haven't transferred, directly or indirectly, any of the earned income in condition (3) above between yourselves before the end of the year. Don't take into account transfers satisfying child support obligations or transfers of very small amounts or value."

Here are the income types that are not community property under the spouses lived apart all year exception.

• Earned income
• Trade or business income
• Partnership income or loss
• Separate property income
• Social security benefits.

Other income.

Treat all other community income, such as dividends, interest, rents, royalties, or gains, as provided under your state's community property law.

However, if you have items like interest and dividends earned on a joint account they also may not be considered community property under the "Community income not treated as community income" exception.  That exception reads:

"Community property laws may not apply to an item of community income that you received but didn't treat as community income. You are responsible for reporting all of that income item if:

• You treat the item as if only you are entitled to the income, and
• You don't notify your spouse of the nature and amount of the income by the due date for filing the return (including extensions)."

For example, you have a joint brokerage account with a 1099-Div that is issued to your social security number. You received the dividends and didn't share the dividends or share the form 1099-Div information, then you are not treating the income as community property.  The entire amount is reported as yours on your tax return and you are not making any adjustments.  

[wegolfers]

Thanks for your reply.  I previously did what you said about answering the TurboTax "Do you have any community property adjustments?" question with a "No" response.  When I completed my full 2023 draft tax filing, TurboTax did NOT show the 8958 in any of the reviewable/printable filing versions (Basic, with Govt worksheets, or with All worksheets).   It appears the coders at TurboTax agree with you.

As background for everyone, I had some frustrating observations that complicated my situation to the point of needing to crowd-source my earlier 8958 question (I wish it were simple):

- Pub 555 and the IRS does not state anywhere "If you meet the MFS-SLAAY criteria then you do not need to submit form 8958."  It would be SO EASY for the gov't to do so and preclude this communications void.

- Last year (2022), using TurboTax, I had the exact same MFS-SLAAY situation, however, TurboTax forced me to complete the 8958, otherwise it gave me perpetual errors.  So I was forced to file it in 2022, with no adjustments (useless).  I can't understand why the inconsistency in TurboTax expert system software...it added to the fog of this situation. 

I hate tax season.

Thank again for helping...