CA state tax - Q on community income

In article <rBWwl.16132$as4.10801[at]nlpi069.nbdc.sbc.com> ,
Mark Bole <makbo[at]pacbell.net> wrote:
- quote -

> D. Stussy wrote:
> > Then what should Hawaii be adjacent to?
> Obviously Hawaii is adjacent to California, we call it "Outer
> California" ;-)
> But it is neither no-tax nor community-property.

Hawaii has Interstate Highways.
--

ArtKamlet at a o l dot c o m Columbus OH K2PZH

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D. Stussy wrote:

- quote -

> Then what should Hawaii be adjacent to?

Obviously Hawaii is adjacent to California, we call it "Outer
California" ;-)

But it is neither no-tax nor community-property.

-Mark Bole

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

"Mark Bole" <makbo[at]pacbell.net> wrote in message
news:ishwl.21535$c45.18916[at]nlpi065.nbdc.sbc.com...
- quote -

> D. Stussy wrote:
> > > > Is it a coincidence that Nevada, Washington, and Texas are states
with
> > > > both community property and no state income tax, and are all adjacent
> > to
> > > > one or more other community property states that do have state taxes?
> > > Conspiracy theories...
> > > Number of states with CP: 15 (30%).
> > Number of states with IT: 45 (90%) (+/- 1)
> > > Only 2 states have no neighbors (Alaska and Hawaii). All other states
have
> > at least 2 neighbors.
> > > The actual computation is left as an exercise for the reader. Don't
forget
> > your aluminum hat.
> Where did you get a count of 15 for states with community property?
> It's AZ, CA, ID, LA, NM, NV, TX, WA, WI, total of nine, see the front
> cover of IRS Pub 555. (Alaska's notion of community property is not
> addressed by the IRS in this pub, so I'm not addressing it either).

My error. I swapped two numbers when I was thinking about this. I think 15
is the count of common-law marriage states. That can be just as bad!

- quote -

> Let's either leave Alaska out for now, or treat it as "adjacent" to
> Washington, which it is closest to out of the lower 48 states (doing so
> only strengthens the statements below).

Then what should Hawaii be adjacent to? Also, I forgot that Maine doesn't
touch Massachusetts; New Hampshire has about 25 miles of coastline that
intercedes.

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

D. Stussy wrote:

- quote -

> > > Is it a coincidence that Nevada, Washington, and Texas are states with
> > > both community property and no state income tax, and are all adjacent
> to
> > > one or more other community property states that do have state taxes?
> > Conspiracy theories...
> Number of states with CP: 15 (30%).
> Number of states with IT: 45 (90%) (+/- 1)
> Only 2 states have no neighbors (Alaska and Hawaii). All other states have
> at least 2 neighbors.
> The actual computation is left as an exercise for the reader. Don't forget
> your aluminum hat.

Where did you get a count of 15 for states with community property?
It's AZ, CA, ID, LA, NM, NV, TX, WA, WI, total of nine, see the front
cover of IRS Pub 555. (Alaska's notion of community property is not
addressed by the IRS in this pub, so I'm not addressing it either).

Let's either leave Alaska out for now, or treat it as "adjacent" to
Washington, which it is closest to out of the lower 48 states (doing so
only strengthens the statements below).

Only one "no tax" state, Florida, is *not* adjacent to or one of the
community property states.

Only one community property state, Wisconsin, is *not* adjacent to or
one of the no-tax states (and Wisconsin's notion of community property
is not really the same as all the others, from what I've been told).

-Mark Bole

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

<removeps-groups[at]yahoo.com> wrote in message
news:fc1afedd-3fb5-49a6-b1bc-ca0b703d6b7f[at]z8g2000prd.googlegroups.com...
- quote -

> On Mar 17, 1:27 am, Mark Bole <ma...[at]pacbell.net> wrote:
> > "Communistic property states", as Harlan likes to call them, are the
> > culprit here, I think.
> Does a prenup that specifies that their W2 income is separate income
> override the default treatment of W2 income (as belonging 1/2 to each
> spouse)? And if they had separate bank accounts, even their 1099-INT,
> 1099-DIV would be separate. If so, everyone should get a prenup, not
> as a tool to protect assets after marriage, but to protect assets from
> government during marriage.

A pre-nup is insufficient. There must be continued separation (i.e. no
comingling of funds); NO JOINT bank accounts or joint ownership of
anything. Only then do they have a chance to avoid CP laws.

- quote -

> > Is it a coincidence that Nevada, Washington, and Texas are states with
> > both community property and no state income tax, and are all adjacent
to
> > one or more other community property states that do have state taxes?
> Conspiracy theories...

Number of states with CP: 15 (30%).
Number of states with IT: 45 (90%) (+/- 1)

Only 2 states have no neighbors (Alaska and Hawaii). All other states have
at least 2 neighbors.

The actual computation is left as an exercise for the reader. Don't forget
your aluminum hat.

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

removeps-groups[at]yahoo.com wrote:

- quote -

> Does a prenup that specifies that their W2 income is separate income
> override the default treatment of W2 income (as belonging 1/2 to each
> spouse)? And if they had separate bank accounts, even their 1099-INT,
> 1099-DIV would be separate. If so, everyone should get a prenup, not
> as a tool to protect assets after marriage, but to protect assets from
> government during marriage.

One can keep separate *property* owned before marriage (or inherited,
gifted) out of the community, and keep the income produced by that
property separate as well, no pre-nup required, just good records to
show the property was not mingled.

I'm not sure about employee compensation, or earnings from a trade or
business, I suspect a pre-nup does not affect their tax treatment during
the marriage, only perhaps how the spoils are divided upon divorce.

-Mark Bole

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

On Mar 17, 1:27 am, Mark Bole <ma...[at]pacbell.net> wrote:

- quote -

> "Communistic property states", as Harlan likes to call them, are the
> culprit here, I think.

Does a prenup that specifies that their W2 income is separate income
override the default treatment of W2 income (as belonging 1/2 to each
spouse)? And if they had separate bank accounts, even their 1099-INT,
1099-DIV would be separate. If so, everyone should get a prenup, not
as a tool to protect assets after marriage, but to protect assets from
government during marriage.

- quote -

> Is it a coincidence that Nevada, Washington, and Texas are states with
> both community property and no state income tax, and are all adjacent to
> one or more other community property states that do have state taxes?

Conspiracy theories...

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

removeps-groups[at]yahoo.com wrote:

- quote -

> So it seems to work like this. CA will tax half of the wife's WA
> income, and WA will tax half of the husband's CA income, then CA will
> give a tax credit for taxes paid to WA, and WA will give a credit for
> taxes paid to CA. Now WA has no income tax. So this seems to be a
> subtle form of marriage penalty.

"Communistic property states", as Harlan likes to call them, are the
culprit here, I think.

Is it a coincidence that Nevada, Washington, and Texas are states with
both community property and no state income tax, and are all adjacent to
one or more other community property states that do have state taxes?

-Mark Bole

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

On Mar 15, 1:56 pm, Mark Bole <ma...[at]pacbell.net> wrote:

- quote -

> > This is not making sense to me. Are you saying that CA would tax half
> > of her WA income?
> If the wife is domiciled in a community property state, 50% of her
> earnings (in this case, WA source income) belongs to her husband. As a
> resident, the husband is taxed by CA on world-wide income, including
> this WA-source community income from his wife. Likewise, 50% of his CA
> source earnings belongs to her (since he too is domiciled in a community
> property state), but WA has no state tax, so they won't tax her on it
> (but California will tax it all, since it is CA source income regardless
> of which spouse owns it).

So it seems to work like this. CA will tax half of the wife's WA
income, and WA will tax half of the husband's CA income, then CA will
give a tax credit for taxes paid to WA, and WA will give a credit for
taxes paid to CA. Now WA has no income tax. So this seems to be a
subtle form of marriage penalty.

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

removeps-groups[at]yahoo.com wrote:

- quote -

> This is not making sense to me. Are you saying that CA would tax half
> of her WA income?

If the wife is domiciled in a community property state, 50% of her
earnings (in this case, WA source income) belongs to her husband. As a
resident, the husband is taxed by CA on world-wide income, including
this WA-source community income from his wife. Likewise, 50% of his CA
source earnings belongs to her (since he too is domiciled in a community
property state), but WA has no state tax, so they won't tax her on it
(but California will tax it all, since it is CA source income regardless
of which spouse owns it).

-Mark Bole

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

On Mar 14, 5:57 pm, Mark Bole <ma...[at]pacbell.net> wrote:

- quote -

> For the part of the year you were both CA residents, no adjustments
> needed. For the part of the year she was not a CA resident, it is more
> complicated. You are taxed on world-wide income (all your income plus
> your 50% share of her income). She is taxed on CA source income (her
> 50% share of your income). There may be some overlap, it's not double
> taxed by CA, or course. Basically all of your income and some of hers
> is taxable by CA, unless she did not establish a new domicile or
> establish WA residency, in which case it's probably all taxable.

This is not making sense to me. Are you saying that CA would tax half
of her WA income?

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

m1chen wrote:
- quote -

> Dear experts,
> My wife got her first permanent job and moved to Seattle in Aug, 2008.

Did she establish a new domicile, in other words did she abandon her CA
domicile and establish stronger ties to her new location than the one
she left? It's uncommon for spouses to have different domiciles, but
not unheard of.

- quote -

> I
> stayed in CA for the whole year. We are going to file federal tax return
> married jointly. Thus we have to file CA tax return with the same status.
> I believe we could use 540NR for this return. Now I am not sure

Unless both spouses were full-year CA residents, you must use Form 540-NR.

- quote -

> 1) If CA would tax on my wife's income as she is non-resident.

They tax all her income for the part of the year she was a resident, and
only CA source income for the part of the year she was a non-resident.

- quote -

> 2) if not, should all of her income be excluded? since WA is community
> income state as CA, do we add half of her income to mine for CA tax return?

For the part of the year you were both CA residents, no adjustments
needed. For the part of the year she was not a CA resident, it is more
complicated. You are taxed on world-wide income (all your income plus
your 50% share of her income). She is taxed on CA source income (her
50% share of your income). There may be some overlap, it's not double
taxed by CA, or course. Basically all of your income and some of hers
is taxable by CA, unless she did not establish a new domicile or
establish WA residency, in which case it's probably all taxable.

Fortunately WA has no state income tax or you would be facing similar
complications there.

- quote -

> 3) which form for this adjustment?

See a professional.


-Mark Bole

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

Dear experts,

My wife got her first permanent job and moved to Seattle in Aug, 2008. I
stayed in CA for the whole year. We are going to file federal tax return
married jointly. Thus we have to file CA tax return with the same status.
I believe we could use 540NR for this return. Now I am not sure

1) If CA would tax on my wife's income as she is non-resident.

2) if not, should all of her income be excluded? since WA is community
income state as CA, do we add half of her income to mine for CA tax return?

3) which form for this adjustment?

Thanks a lot for your help,

Max
-----



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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >