Presentation is loading. Please wait.

Presentation is loading. Please wait.

Married Filing Separately and Community Property Training January 15, 2015.

Similar presentations


Presentation on theme: "Married Filing Separately and Community Property Training January 15, 2015."— Presentation transcript:

1 Married Filing Separately and Community Property Training January 15, 2015

2 Introduction Married taxpayers come to VITA/TCE sites wanting to file separately Want to keep financial affairs “separate” Avoid refund offset when one spouse owes money o Child support o Student loans o Federal or state taxes o Other federally collectible debt VITA/TCE site should not file a separate return “just because” the taxpayer requests it

3 Introduction Taxpayers who have been separated for a long time and haven’t divorced for a variety of reasons Religious reasons Cost involved Don’t want “stigma” Children

4 Objectives At the end of this lesson, you will be able to: List the conditions that must be met for a VITA/TCE site to prepare a return with the filing status of Married Filing Separately (MFS). Identify the forms and worksheets in TaxWise that must be completed when preparing a MFS return.

5 Filing Status 5 Filing Statuses: Single Married Filing Jointly (MFJ) Married Filing Separately (MFS) Head of Household (HOH) Qualifying Widow(er) with Dependent Child

6 Definition of Single Considered unmarried o Unmarried o Divorced under a final decree by 12/31 OR o Legally separated under a divorce or separate maintenance decree by 12/31 NOT under interlocutory (not final) decree of divorce Governed by state law

7 Definition of Married Considered married o Married and living together o Living together in common law marriage o Married and living apart, but not legally separated under decree of divorce or separate maintenance OR o Separated under interlocutory (not final) decree of divorce If not legally separated, then married o MFJ o HOH (if qualify) o MFS

8 General Rule Generally VITA/TCE sites in California do not prepare MFS returns Why? – Because of Community Property rules o Adds to complexity of tax return – volunteers not trained o Community income has to be split – information on Form W-2 will not match information on return o Other spouse may disregard community property rules

9 What is Community Property? Community property is property: That you, your spouse…, or both acquire during your marriage…while you and your spouse… are domiciled in a community property state. (Includes the part of property bought with community property funds if part was bought with community funds and part with separate funds.) That you and your spouse… agreed to convert from separate to community property. That cannot be identified as separate property. Note: Also applies to Registered Domestic Partners (RDPs)

10 What is Community Income? Community income is income from: Community property. Salaries, wages, or pay for services of you, your spouse…, or both during your marriage…while domiciled in a community property state. Real estate that is treated as community property under the laws of the state where the property is located. Note: Also applies to Registered Domestic Partners (RDPs)

11 Community vs. Non-Community? Examples of community income: o Wages o Self-employment income o Pensions * Examples of non-community income: o Inheritances o Pensions * * Note that pensions can be community or non- community (or both), depending on where the pension was earned.

12 Community vs. Non-Community? Whether income is community property or not depends on: Type of income Domicile of individual earning it

13 What is Domicile? Domicile is defined for tax purposes as the place where you voluntarily establish yourself and family, not merely for a special or limited purpose, but with a present intention of making it your true, fixed, permanent home and principal establishment. It is the place where, whenever you are absent, you intend to return.

14 Change of Domicile You can have only one domicile at a time. Once you acquire a domicile, you retain that domicile until you acquire another. A change of domicile requires all of the following: o Abandonment of your prior domicile. o Physically moving to and residing in the new locality. o Intent to remain in the new locality permanently or indefinitely as demonstrated by your actions. Domicile can be different from residence o FTB presumes you are a resident if you spend more than nine months in California during the tax year.

15 Exercise # 1 Q: What requirements must be met for a taxpayer to be considered “unmarried”?

16 Exercise # 1 Q: What requirements must be met for a taxpayer to be considered “unmarried”? A: To be considered unmarried, a taxpayer must be: Unmarried Divorced under a final decree by 12/31 OR Legally separated under a divorce or separate maintenance decree by 12/31 o NOT under interlocutory (not final) decree of divorce o Governed by state law

17 Exercise # 2 Q: What 2 factors determine whether income is community property or not?

18 Exercise # 2 Q: What 2 factors determine whether income is community property or not? A: Whether income is community property or not depends on: Type of income Domicile of individual earning it

19 Exercise # 3 Q: Is domicile the same as residence?

20 Exercise # 3 Q: Is domicile the same as residence? A: No, in California domicile and residence are different. The FTB presumes you are a resident if you spend more than nine months in California during the tax year. The taxpayer’s “intent” is a relevant factor in determining domicile.

21 Keep It Simple No intent to teach all community property and domicile rules in this class VITA/TCE volunteers generally should not be making determinations of community property and/or domicile o Taxpayers should be presumed to be residents of and domiciled in California o If in doubt, refer to professional preparer Establish some easy-to-follow guidelines as to when community property/income rules do not apply If community property is not an issue, preparing a return using MFS filing status is not complex

22 VITA/TCE and MFS When can VITA/TCE sites do returns with MFS? Certain conditions must be met – must be sure community property rules do not apply Must be crystal clear with no exceptions or gray areas All of the following 4 conditions must be met: 1.Taxpayer lived apart from spouse the entire tax year and has NO intention of reconciliation 2.No commingling of funds 3.Name and SSN (or ITIN) of spouse available 4.Site coordinator must approve the MFS filing status

23 4 Conditions for MFS 1.Taxpayer lived apart from spouse the entire tax year and has NO intention of reconciliation o Spouses do not live in same house, even on separate floors/rooms o No conjugal visits 2.No commingling of funds o No joint bank accounts o No property owned jointly or acquired with community income

24 4 Conditions for MFS 3.Name and SSN (or ITIN) of spouse available o Must be included on tax return o On MFS returns, if one spouse itemizes, both spouses must itemize – standard deduction not allowed o Taxpayer should be asked if spouse itemizes o Taxpayers who take standard deduction should be advised that IRS could disallow it 4.Site coordinator must approve MFS filing status o Site coordinator, preparer, and quality reviewer must be trained at advanced level and in this community property/MFS training o MFS should be exception rather than rule

25 Exception for NRA Spouse California resident whose spouse is a non- resident alien (with or without Taxpayer Identification Number [TIN]) o Spouse lives in foreign country o Taxpayer lives in US all year and does not qualify for HOH o Taxpayer does not want to file MFJ Put “NRA” in SSN field if no TIN Cannot claim personal exemption for spouse if no TIN Return must be paper filed if no TIN Site coordinator approval required

26 Exercise # 4 Q: A taxpayer at your VITA/TCE site says she lives and is married in Ohio, wants to file MFS, and is working in California only temporarily. What should you do?

27 Exercise # 4 Q: A taxpayer at your VITA/TCE site says she lives and is married in Ohio, wants to file MFS, and is working in California only temporarily. What should you do? A: The taxpayer should be referred to a professional preparer to determine residency and domicile.

28 Exercise # 5 Q: What are the 4 conditions that must be met for a VITA/TCE site to prepare a MFS return?

29 Exercise # 5 Q: What are the 4 conditions that must be met for a VITA/TCE site to prepare a MFS return? A: 1.Taxpayer lived apart from spouse the entire tax year and has NO intention of reconciliation 2.No commingling of funds 3.Name and SSN (or ITIN) of spouse available 4.Site coordinator must approve the MFS filing status Must be crystal clear with no exceptions or gray areas

30 Exercise # 6 Q: What is the exception for a taxpayer with a non-resident alien spouse?

31 Exercise # 6 Q: What is the exception for a taxpayer with a non-resident alien spouse? A: California resident whose spouse is a non-resident alien (with or without TIN) Spouse lives in foreign country Taxpayer lives in US all year and does not qualify for HOH Taxpayer does not want to file MFJ If no TIN, cannot claim personal exemption for spouse and return must be paper filed. Site coordinator approval required.

32 Role Play John Doe, a taxpayer at your volunteer site, has indicated on the Intake Sheet that he is married but has not lived with his spouse during the last 6 months of the tax year. He does not qualify for HOH. What questions would you ask to determine John’s eligibility for the volunteer program?

33 Preparing the Return on TaxWise

34 Starting a Return

35 Choosing Filing Status After selecting MFS, enter spouse’s name and SSN on the MAIN INFO sheet, and answer the questions where fields are red

36 Choosing Filing Status

37 Form 8958, Allocation of Tax Amounts Between Certain Individuals in Community Property States, will appear on the tree in red

38 Allocating Income on Form 8958 Fill in name and SSN of spouse F3/CTRL Space (clear red) the red fields in column 3

39 The amounts in column 1 (Total Income…) and column 2 (Allocated to Spouse…) should be the same The headings for columns 2 and 3 may be confusing, as they both refer to “spouse” For in-scope returns, all income must be allocated to the taxpayer (column 2) Columns 1, 2 & 3

40 Printed Form 8958 Printed form is clearer than TaxWise worksheet

41 Completing Form 8958 Be sure to complete pages 1 and 2 of Form 8958

42 Completing the Form 1040 On Form 1040, Line 39b, F3/CTRL Space (clear red) the MFS box

43 California Form 540 No additional input is necessary on Form 540. Note that FTB does not require Form 8958.

44 Printed Form 1040 Note location of spouse’s SSN and name on taxpayer’s copy of return

45 Non-Resident Alien Spouse NRA Hand write “NRA” in spouse’s Social Security Number field

46 Printed Form 540 Location of spouse’s SSN and name on page 1 of Form 540

47 Exercise # 7 Q: Where do you input the spouse’s name and SSN on a MFS return?

48 Exercise # 7 Q: Where do you input the spouse’s name and SSN on a MFS return? A: After selecting MFS, enter spouse’s name and SSN on the MAIN INFO sheet, and answer the questions where fields are red

49 Exercise # 8 Q: After answering the questions relating to residency in a community property state on the MAIN INFO Sheet, what form will appear in the TaxWise tree?

50 Exercise # 8 Q: After answering the questions relating to residency in a community property state on the MAIN INFO Sheet, what form will appear in the TaxWise tree? A: The Form 8958, Allocation of Tax Amounts Between Certain Individuals in Community Property States, will appear on the tree in red.

51 Exercise # 9 Q: For a MFS return to be within the scope of VITA/TCE, to whom must all of the income on the return be allocated?

52 Exercise # 9 Q: For a MFS return to be within the scope of VITA/TCE, to whom must all of the income on the return be allocated? A: For in-scope returns, all income must be allocated to the taxpayer (column 2 of Form 8958).

53 Exercise # 10 Q: Where is the checkbox to indicate whether your spouse itemizes his/her deductions?

54 Exercise # 10 Q: Where is the checkbox to indicate whether your spouse itemizes his/her deductions? A: On Form 1040, Line 39b, F3/CTRL Space (clear red) the MFS box. You have to check the box, then uncheck it before hitting F3. If taxpayer knows that the spouse itemizes, simply check the box.

55 Exercise # 11 Q: Does the Form 8958, Allocation of Tax Amounts Between Certain Individuals in Community Property States, need to be sent to the Franchise Tax Board with the Form 540?

56 Exercise # 11 Q: Does the Form 8958, Allocation of Tax Amounts Between Certain Individuals in Community Property States, need to be sent to the Franchise Tax Board with the Form 540? A: No, the FTB does not require Form No additional input is necessary on Form 540.

57 Summary Taxpayers come to VITA/TCE sites wanting to file separately for a variety of reasons. To be considered unmarried, a taxpayer must be either divorced under a final decree by 12/31 OR legally separated under a divorce or separate maintenance decree by 12/31. Generally, VITA/TCE sites in California do not prepare MFS returns because of community property rules. Whether income is community property or not depends on the type of income and the domicile of the person earning it.

58 Summary VITA/TCE volunteers generally should not be making determinations of community property and/or domicile; when in doubt, refer to a paid preparer. Four (4) conditions must be met for a VITA/TCE site to prepare a MFS return: 1.Taxpayer lived apart from spouse the entire tax year and has NO intention of reconciliation 2.No commingling of funds 3.Name and SSN (or ITIN) of spouse available 4.Site coordinator must approve the MFS filing status

59 Summary If a taxpayer’s spouse does not have a TIN because he/she is a non-resident alien and lives in a foreign country, put NRA in the SSN field. However, the taxpayer cannot claim a personal exemption for the spouse and the return must be paper filed. On a MFS return, the spouse’s name and SSN/ITIN is entered in the Filing Status section of the MAIN INFO sheet on TaxWise. Additionally, several questions must be answered regarding the taxpayer’s residency in a community property state.

60 Summary Income must be allocated on the Form 8958, Allocation of Tax Amounts Between Certain Individuals in Community Property States. For in-scope returns, all income must be allocated to the taxpayer. The checkbox to indicate whether the taxpayer’s spouse itemizes is on Form 1040, Line 39b. If the spouse does not itemize or if it is unknown, F3/CTRL Space (clear red) the MFS box. The FTB does not require Form No additional input is necessary on Form 540.

61 Questions??????


Download ppt "Married Filing Separately and Community Property Training January 15, 2015."

Similar presentations


Ads by Google