Married taxpayers have two choices with respect to their filing status on federal income tax returns. They can file their taxes jointly or they can file separate returns. The rules are the same for taxpayers filing jointly in community property states and common law property states. However, the treatment of spouses electing to file separately varies depending on whether the couple lives in a common law property state or in a community property state.
In a common law property state, spouses who elect to file separately are responsible only for reporting and paying the taxes on their individual income. In a community property state, where spouses file separately, the income of both spouses must be combined and split between the spouses for tax reporting and payment purposes.
The following states are community property states:
(1) Washington,
(2) Idaho,
(3) Nevada,
(4) Wisconsin,
(5) Arizona,
(6) New Mexico,
(7) Texas,
(8) Louisiana, and
(9) California.
Additional Tax Tip:
Chain of states starts in Washington to Louisiana. The only exception is Wisconsin.
The tax consequences flowing from state community property laws were not determined statutorily but were determined many decades ago by the Supreme Court of the United States, as well as the various circuit courts (Poe v. Seaborn, 282 U.S. 101 (1930) (Washington); Goodell v. Koch, 282 U.S. 118 (1930) (Arizona); Hopkins v. Bacon, 282 U.S. 122 (1930) (Texas); Bender v. Pfaff, 282 U.S. 127 (1930) (Louisiana); U.S. v. Malcolm, 282 U.S. 792 (1931) (California)).
Based on the determination that married taxpayers domiciled in these community property states have an undivided one-half interest in the entire community, it has long been the law that such taxpayers must file either joint tax returns, or married filing separately tax returns that reflect one-half of total community income and expenses (U.S. v. Mitchell, 403 U.S. 190 (1971); Mischel v. Comm’r, T.C. Memo. 1997-350; Shea v. Commissioner, 112 T.C. 183 (1999)). The Supreme Court stated that this is not only a right, but an obligation, regardless of which spouse earned the community income (U.S. v. Malcolm, 282 U.S. 792 (1931)).
Additional Tax Tip:
In Alaska, spouses can opt in to the community property system by signing an agreement designating specific assets as community property.
Please contact the office of Don Fitch Accountancy at (760)567-3110 or Email Don.Fitch@CPA.com if you have any questions or would like additional information.
DON FITCH, CPA
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Palm Desert, CA 92260
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(Updated 02/28/2021 08:19)