Margaret CPA in OH Posted November 27, 2023 Report Share Posted November 27, 2023 Potential new client coming in today. She and spouse are long separated filing MFJ for personal reasons. Spouse is CA resident, client is OH resident and thinks she is paying unfair amount of tax. I'm speculating that it is because CA is a community property state but OH is not. I have begun reading through CA info but am not finding useful information. I would appreciate any hints, clues, suggestions, references, whatever you have to point me in the right direction. I've never prepared a community property state return so am on new ground here and looking to my peeps for help. Thanks! Quote Link to comment Share on other sites More sharing options...
Lee B Posted November 27, 2023 Report Share Posted November 27, 2023 I am so glad I am not in a community property state 2 Quote Link to comment Share on other sites More sharing options...
Margaret CPA in OH Posted November 27, 2023 Author Report Share Posted November 27, 2023 Oops! Edit to say they are MFS not joint. Sorry for any confusion. I'm confused enough! Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted November 27, 2023 Report Share Posted November 27, 2023 Your CA resident and OH resident will file MFS in CA (you file the same for CA as you do for Fed in most cases - I don't see that they qualify for any exception). CA resident will file a 540, claiming all worldwide income less the 50% of community income. OH Resident will file a 540NR, show all worldwide income, and pay tax on the 50% community income. Adjustments to taxable income will be done on Schedule CA 540 NR. Tom Longview, TX 2 Quote Link to comment Share on other sites More sharing options...
Margaret CPA in OH Posted November 27, 2023 Author Report Share Posted November 27, 2023 Thanks so much, Tom! I've been reading some CA instructions and think I do not understand why the OH resident would have to pay on 50% of community income if there is none (I think only retirement). I read this: Nonresidents of California are taxed only on income from California sources. Nonresidents of California are not taxed on pensions received after December 31, 1995. For more information, get FTB Pub. 1005, Pension and Annuity Guidelines. so wonder how the OH resident must pay on retirement income and SS, for example, when she has moved her accounts (that's another story) to OH fund manager. Why would this retirement income be from CA source? Does that get adjusted in the Schedule CA 540 NR? I'll have to look at that. She will be arriving soon so more details to follow! Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted November 27, 2023 Report Share Posted November 27, 2023 CA taxes worldwide income of residents. It taxes income of non-residents earned in the state of CA. SS is exempt from tax in CA, so that is not an issue for either one of them. The schedule CA removes SS income for residents and non-residents alike. Pensions received by a CA resident are taxable income regardless of the state earned in or paid from. If you are a resident of CA, your pension is taxable to CA. Pension income is community income, therefore, your NR OH taxpayer has CA source pension income (50% of what your CA taxpayer received). Tom Longview, TX Quote Link to comment Share on other sites More sharing options...
JimTaxes Posted November 27, 2023 Report Share Posted November 27, 2023 SS income is not taxable in Ohio. Quote Link to comment Share on other sites More sharing options...
Margaret CPA in OH Posted November 27, 2023 Author Report Share Posted November 27, 2023 Okay. she just left. She receives $85,000 in alimony, files single (not MFS as I was told) with a court decreed separation agreement, and has only dividends and some cap gains from a few stock sales. I just question about the alimony being CA 'sourced.' It's personal checks not pension or other distributions from spouse. Spouse has retirement income to generate the alimony funds. When spouse dies, likely before her, she will have some pension income as he reduced current distribution for her to have income after he dies. Would that then be CA sourced? It's from a university but not a 2023 issue as he is still alive. Thanks! Quote Link to comment Share on other sites More sharing options...
Lynn EA USTCP in Louisiana Posted November 27, 2023 Report Share Posted November 27, 2023 As you know, taxability of alimony depends on the date of the decree. 2 Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted November 27, 2023 Report Share Posted November 27, 2023 52 minutes ago, Margaret CPA in OH said: ...files single (not MFS as I was told) If she files single, the whole discussion is moot. There is no community income if there is no "community". Tom Longview, TX 1 Quote Link to comment Share on other sites More sharing options...
Margaret CPA in OH Posted November 28, 2023 Author Report Share Posted November 28, 2023 The separation agreement was around 2015 or so. Okay, then, about no community if filing single. Since they are not actually divorced, I wasn't sure about 'community' as uncertain that filing status trumped legal arrangement - or however that should be stated. I've just never had anyone filing in a community property state or anyone with alimony. I guess I've lived a charmed professional life! Thanks to all for comments and guidance! Quote Link to comment Share on other sites More sharing options...
Bart Posted November 28, 2023 Report Share Posted November 28, 2023 28 minutes ago, Margaret CPA in OH said: Okay, then, about no community if filing single. Since they are not actually divorced "If they are not actually divorced", she cannot file single can she? 1 Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted November 28, 2023 Report Share Posted November 28, 2023 26 minutes ago, Bart said: "If they are not actually divorced", she cannot file single can she? If they are not legally separated, why is he paying alimony? Tom Longview, TX Quote Link to comment Share on other sites More sharing options...
Margaret CPA in OH Posted November 28, 2023 Author Report Share Posted November 28, 2023 So I am not the only one for which this situation is new. I told this now-client that her situation taught me something I had never, in over 30 years of practice, seen. Filing status of single is correct if "(a) taxpayer is single if unmarried or separated from a spouse, either by divorce or a separate maintenance decree, on December 31." My bold and my, because she called it alimony, misspeak. The payments are separate maintenance. From Topic 452: Alimony or Separate Maintenance – In General Amounts paid to a spouse or a former spouse under a divorce or separation instrument (including a divorce decree, a separate maintenance decree, or a written separation agreement) may be alimony or separate maintenance payments for federal tax purposes. A payment is alimony or separate maintenance if all the following requirements are met: The spouses don't file a joint return with each other; The payment is in cash (including checks or money orders); The payment is to or for a spouse or a former spouse made under a divorce or separation instrument; The spouses aren't members of the same household when the payment is made (This requirement applies only if the spouses are legally separated under a decree of divorce or of separate maintenance.); There's no liability to make the payment (in cash or property) after the death of the recipient spouse; The payment isn't treated as child support or a property settlement; and The divorce or separation agreement does not designate the payment as not includable in gross income of the payee spouse and not allowable as a deduction to the payer spouse. And I also have learned more about CA taxation and community property! This is such a great group, right? And I have a new client 1 Quote Link to comment Share on other sites More sharing options...
Gail in Virginia Posted November 28, 2023 Report Share Posted November 28, 2023 1 Quote Link to comment Share on other sites More sharing options...
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