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IRS Publication 555 Community Property outlines the requirements for filing with a status of Married Filing Separately (MFS) 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 three-step process to file these returns using the TaxAct software. These instructions are to be used with the information provided in IRS Publication 555.

Step 1:

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.

On page 3:

Community or Separate Property and Income

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 return 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:

  • That you, your spouse (or your registered domestic partner), or both acquire during your marriage (or registered domestic partnership) while you and your spouse (or your registered domestic partner) are domiciled in a community property state;
  • That you and your spouse (or your registered domestic partner) agreed to convert from separate to community property; and
  • That can't be identified as separate property.

Community income. Generally, community income is income from:

  • Community property;
  • Salaries, wages, and other pay received for the services performed by you, your spouse (or your registered domestic partner), or both during your marriage (or registered domestic partnership) while domiciled in a community property state; and
  • Real estate that is treated as community property under the laws of the state where the property is located.

Separate property. Generally, separate property is:

  • Property that you or your spouse (or your registered domestic partner) owned separately before your marriage (or registered domestic partnership);
  • Money earned while domiciled in a noncommunity property state;
  • Property that you or your spouse (or your registered domestic partner) received separately as a gift or inheritance during your marriage (or registered domestic partnership);
  • Property that you or your spouse (or your registered domestic partner) bought with separate funds, or acquired in exchange for separate property, during your marriage (or registered domestic partnership);
  • Property that you and your spouse (or your registered domestic partner) converted from community property to separate property through an agreement valid under state law; and
  • The part of property bought with separate funds, if part was bought with community funds and part with separate funds.

Special circumstances:

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.

Step 2:

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):

  • Separate income/deduction:
    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.
  • Community income/deduction:
    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-2s 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.

Step 3:

In the TaxAct program, 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 from each spouse's return in order to complete the Spouse column on the other spouse's return:

TaxAct Online Users:

  1. Sign in to your TaxAct Online return.
  2. Click Print Center down the left to expand, then click Custom Print.
  3. Click Form 8958 - [NAME].
  4. Click Print, then click the PDF link. The item will appear in a PDF read-only format. At that time, you can click the printer icon on the screen to actually print, or close the window without printing.

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:

  1. Start your TaxAct Desktop program.
  2. Click Forms in the top left corner of the toolbar to open the Forms View.
  3. Click to expand the Federal folder, then click to expand the Forms and Schedules folder.
  4. Double-click Form 8958 - Allocation of Tax Amounts Between Certain Individuals in Community Property States.
  5. Click the Printer icon above the worksheet on the right side of the screen. In the Print dialog box, you can send the output to a printer or a PDF document.

To access Form 8958 in the TaxAct program to complete the spouse column for each return - and the address in the return is within one of twelve community property states (CA, AZ, ID, LA, NM, TX, WA, WI, NV, AK, SD, or TN):

  1. From within your TaxAct return (Online or Desktop), click Federal. On smaller devices, click in the upper left-hand corner, then click Federal.
  2. Click Miscellaneous Topics in the Federal Quick Q&A Topics menu to expand, then click Community property allocation record (Form 8958).
  3. Click Yes to enter/review the spouse information on the Community Property Allocation Record, then continue with the interview process to enter all of the appropriate information.

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.

Note that any link in the information above is updated each year automatically and will take you to the most recent version of the document at the time it is accessed.


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