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Generally, when you live in a community property state and you and your spouse file separate returns, you must split any community income and deductions evenly between the spouses. However, different rules apply for the assessment of self-employment tax.

Per IRS Publication 555 Community Property, on page 7:

Sole proprietorship. With regard to net income from a trade or business (other than a partnership) that is community income, self-employment tax is imposed on the spouse carrying on the trade or business.

When one or both spouses has self-employment income, they each must report half of the income on their return. However, the spouse who has the self-employment income should pay the full amount of self-employment tax on their earnings and the spouse who does not have self-employment earnings should not pay any self-employment tax on those earnings.

To make the self-employment tax adjustment:

  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 Taxes in the Federal Quick Q&A Topics menu to expand, then click Self-employment tax adjustments.
  3. Continue with the interview process to enter all of the appropriate information.
  4. On the screen titled Self-Employment Tax - Adjustments, enter a positive Other adjustments (+ or -) amount for the spouse with the self-employment income or a negative amount for the spouse without self-employment income, then click Continue.

The program will now calculate the correct amount of self-employment tax for each spouse.

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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