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While I am a non-resident for tax purposes and have an income, my wife is resident for tax purposes and does not have an income.

We are residents of California and I was wondering how its community state laws would affect our Married Filing Separately filing status.

I had posted a question to that effect here: F1 student, as a non-resident, filing married separate tax return with US Citizen wife

This was based not only from feedback of forum members but also reading these websites:

http://taxes.about.com/od/filingstatus/qt/marriedseparate.htm

"If you suspect that your spouse is evading taxes and may be liable on a joint return, you may want to file a separate return. By filing separately, you avoid liability for unpaid taxes due on a joint return, plus penalties and interest."

Community property is considered to be jointly owned by both spouses. Accordingly, each spouse generally reports half of the total community property income on his or her separate tax return. Similarly, community property deductions are split in half, with each spouse reporting half the deduction on their separate return.

http://taxes.about.com/od/income/a/community-property-income.htm

Compensation in the form of wages, salaries, commissions, and self-employment are always treated as income belonging to the marital community. If spouses are filing separate federal tax returns, each spouse will report one-half of the total compensation income and one-half of the withholding on that compensation income.

http://finance.zacks.com/report-income-married-filing-separately-arizona-5743.html

In community property states such as Arizona, all income earned by either spouse belongs equally to both. Therefore, if you file separate married returns, you must total all marital income then divide it down the middle, with each of you reporting half. If you earned $50,000 and your spouse earned $150,000, you must each report $100,000 in income, even if you didn't personally earn that much. You're responsible for paying income tax on the additional $50,000 you must claim.

The following website specifically cites an example based off which I proceeded to ask the above question:

http://zing.ncsl.nist.gov/cifter/TheCD/TMFsite_instrumented/FoolSite/FoolMain/taxes/2000/taxes000602.htm

Example: Philip and Mary are married and live in California. Philip's wages are $100,000 per year. Mary's wages are $30,000 per year. You would think that, if they elect to file a married-separate tax return, they would each report their respective incomes on their own returns. But, since California is a community property state, they are actually required to combine both incomes (for a total of $130,000), and each report half of the total on their respective separate returns. So, in this case, using the married-separate filing status, Philip and Mary would each report $65,000 in wages on their separate tax returns.

However, from the comments on that question, I concluded that my understanding is flawed.

I would very much welcome and appreciate the how and the why (how should we file our return just based on income and why the process I had outlined in my previous question was flawed)

I am also welcome to answers that do not address the above mentioned flawed question of mine but it would be much appreciated if you did address it.

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1 Answer 1

up vote 1 down vote accepted

I'm not sure what "my understanding" it is that you're talking about, but you got the quotes right, and it seems that they answer your question perfectly.

You mentioned that you work, and your wife has no income. Assume you earn $X as your salary. Tax-wise (and ownership-wise), you report 0.5*X as your income, and your wife reports 0.5*X as her income, if you're filing separate returns.

Note that each community state has its own laws, what works in Arizona might not work in California.

IRS Publication 555 covers this area.


You see why it is worth paying some $$$ to a decent tax adviser? Look how many hours you've spent already, and you're talking about a reasonably simple return.

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This is only if you're treated as resident, by the way. If you're non-resident - your income (for Federal tax purposes) is separate. For California you're resident anyway and all income is community. –  littleadv Jan 4 '13 at 6:35
    
Thanks for the answer. "my understanding" -> money.stackexchange.com/questions/19035/…. Is it wrong? Where is it flawed? –  sekharan Jan 4 '13 at 16:26
    
@sekharan read the publication, its just too big to quote the whole of it as an answer –  littleadv Jan 4 '13 at 17:58
    
I did read the publication and I still don't understand why my calculations at (money.stackexchange.com/questions/19035/…) is wrong. I am accepting this answer because you have responded exactly to this question, but I would request you to try and attempt at at-least pointing out a (few) flaws in that question: money.stackexchange.com/questions/19035/… –  sekharan Jan 5 '13 at 6:43
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Read again the portion that speaks about your situation: non-resident spouse of a resident taxpayer filing as non-resident MFS. Follow the instructions and make sure to read everything several times and understand it completely. If I were you I would have a professional do that. –  littleadv Jan 5 '13 at 9:27

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