Community property effects on taxes

That's because the Internal Revenue Service defers to community property law. So you must report not just your legally separate earnings, but also half of all community income on your separate federal tax returns.

So a wife making just a few thousand dollars from a separate account has to report half of her husband's $100,000 salary, too. Outside of a community property state, each spouse lists earnings separately on these forms, often to benefit from otherwise elusive deductions such as medical expenses that must exceed a certain threshold. The requirement to add a spouse's earnings could defeat that purpose and could change a community property couple's mind about filing separate returns.

Divorce difficulties

Community property becomes more of an issue when marital bliss turns to discord.

In California, the date of separation is the time when the community earnings period stops, says Dawson. That can help ease individual federal tax filings during the divorce proceedings.

Texas, however, does not have legal separation, says Rosenhouse, so the joint earnings are not so easily resolved. "If it's a bloody divorce, community property will be a contentious argument," he says. "You have a divorcing couple that wants to file separately and must legally report 50 percent of spousal income. If the divorce is contentious, neither wants to give the other records of income."

There's also the issue of honest mistakes. When the parting husband and wife don't understand how state community property laws apply to federal tax filings, says Rosenhouse, a lot of people file their IRS returns improperly.

And, says Dawson, inconsistently filed returns by divorcing couples are likely to get both ex-spouses audited.

Always separate for same-sex couples

Same-sex couples in California, Nevada and Washington also must deal with community property implications in filing their federal tax returns. These three states recognize registered domestic partnerships. Some California couples also were married during the few months in 2008 that same-sex weddings were legal in the Golden State.

Since the federal government does not recognize state-approved same-sex marriages, couples in these three states must file separate federal returns as single taxpayers or, if they have dependent children, as head of household. However, the IRS continues to require the partners to follow their states' community property laws in filling out the separate federal returns.

As with husband-wife separate filers, same-sex partners must each report half the combined community income earned by both, as well as any separate income. Depending on the couple's circumstances, the federal tax result could be better or worse.

The IRS covers this and other community filing issues for same-sex couples in Publication 555 and the document on its website titled "Questions and Answers for Registered Domestic Partners and Same-Sex Spouses in Community Property States."


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