IRS Publication 555 Community Property outlines the requirements for filing with a status of Married Filing Separately when you are domiciled in a community property state.
TaxAct® supports the completion of these returns so they can be electronically filed. Below is a summary of the 3 step process to file these returns using the TaxAct software. These instructions are to be used in conjunction with the information provided in IRS Publication 555.
Gather all documents received from employers, financial institutions, etc. that report income or deductions for either spouse. Use IRS Publication 555 to determine if each item would qualify as community income/deduction or separate income/deduction. Unfortunately, there is not a way for the TaxAct program to calculate this allocation between the returns automatically because the two returns are not linked in any way. Each taxpayer must determine the applicable split of income and deductions and then enter the appropriate amount in the Federal program for their own return.
Per IRS Publication 555, Community Property page 3:
If you file a federal tax return separately from your spouse, you must report half of all community income and all of your separate income. Likewise, a registered domestic partner must report half of all community income and all of his or her separate income on his or her federal tax return. You each must attach your Form 8958 to your Form 1040 showing how you figured the amount you are reporting on your return.
Generally, the laws of the state in which you are domiciled govern whether you have community property and community income or separate property and separate income for federal tax purposes. The following is a summary of the general rules. These rules are also shown in Table 1.
Community property. Generally, community property is property:
Community income. Generally, community income is income from:
Separate property. Generally, separate property is:
IRS Publication 555 has additional detailed information and examples to help determine whether income/deductions should be treated as separate or community and how to calculate items that are figured without regard to community property laws (i.e. IRA deductions and the Earned Income Credit). Spouses can decide between themselves which spouse will claim dependents, if any.
Complete each spouse's return by entering the information as follows (each return will reflect half of all community income for both spouses and all of the separate income for that spouse):
Enter these items in only the return of the spouse that you have determined the income/deduction belongs to. Enter the entire amount in that return.
Enter these items in each spouse's return, entering only half of the amounts in each return.
Note that when community income is entered in the return, the Payer (or Employer) information will be entered as it appears on the form received. The Recipient name will be the name of the spouse on the return the information is being entered on. For example, a W-2 received by Spouse A will also be entered on Spouse B's return (with only half of the amounts being entered). Spouse B's name will appear on the W-2 in their return although it does not actually appear on the W-2 the employer issued.
This is why the allocation worksheet on each return collects the information from both spouses. The IRS is then able to match the total from both spouses (i.e. for the W-2 forms) to the total of the W-2 forms received from the employers.
Below is an example of how to enter W-2 income on each return (assuming there was one W-2 for each individual):
Generate two W-2's for the taxpayer on the return. One should contain the taxpayer's W-2 entries divided by two (50%), and one should contain the spouse's/partner's W-2 entries divided by two (50%). This second W-2 will be entered using the taxpayer's name with the spouse's/partner's employer information.
Follow the same method to enter the W-2 income on the spouse's return.
In the TaxAct program, the Form 8958 Allocation of Tax Amounts Between Certain Individuals in Community Property States outlines how the income items were allocated between the spouses/partners when filing a separate return. The income, in the tax return being reviewed, will already be allocated to the taxpayer. The spouse/partner amounts from their separate return will need to be entered in the spouse column.
First, print the Form 8958, Allocation of Tax Amounts Between Certain Individuals in Community Property States from each spouse's return in order to complete the Spouse column on the other spouse's return:
TaxAct Online Users:
Note: If you see a "no [information/forms/documents] available to print" message, click the View/Pay your return fees link and follow the prompts to pay your TaxAct program fees.
TaxAct Desktop Users:
To access the Form 8958 in the TaxAct program to complete the spouse column for each return:
Note. The other spouse's information (i.e. name and social security number), will be electronically filed with the return due to their information having been entered in the Basic Info section of the Federal Q&A.