State returns for married couple living/working in different states (CA & IL)

Question

For the tax year 2016, me and my wife were residents of and earning income in different states (CA and IL). We filed a joint federal return to have larger deductions, but I am not sure if we should file separate or joint state returns.

Filing separate state returns would give up the deductions associated with being married, and has the additional complication of community property/income for the state of California. Filing joint state returns would be preferred, but has the complication of the residency. Both methods are allowed by California and Illinois for our case.

If we file separate state returns, do we have to file both for each state, i.e. CA-resident + CA-nonresident and IL-resident + IL-nonresident?

Also, what online method is better suited to file our state taxes? I found that TurboTax is badly designed to handle these cases, and does not provide adequate support.

Thank you.

Answer 1

For your situation I would probably hire an accountant, at least for the first time, and then you can see exactly what works best for your situation. After you see the best way to file your taxes, then you could do that yourself the following years.

You mention federal returns, I believe federal has nothing to do with your state returns other than actually deducting the state tax paid on your federal return if you are itemizing.

As to what you need to do with the state, this probably varies from state to state, but I believe it has to do with where your "primary" residence is, and any requirements the state has for nonresidents. So if you are filing separately, then I don't think what the other does matters.

I would definitely do you research and ask a tax accountant.

Answer 2

Was in similar situation CA-NJ.

"If we file separate state returns, do we have to file both for each state, i.e. CA-resident + CA-nonresident and IL-resident + IL-nonresident? Also, what online method is better suited to file our state taxes? I found that TurboTax is badly designed to handle these cases, and does not provide adequate support."

1. Most of the Tax softwares would not cover your situation. What % of their total potential customers will be in a scenario where husband and wife are earning income in different states...very few, so they will not build such software feature.

2. The money that you might save by DIY would not be worth a hassle should there be an audit.

I filed tax return for quite a few years , but when encountered with CA-NJ scenario I just deferred it to an accountant.