Tax question - Married couple work and live in different state?

Question

Here's my situation:
1. My wife and I got married at October 2006.
2. My wife works in California whole year 2006
3. I work in Texas whole year 2006
4. We bought a house together in Texas on February 2006
5. Texas doesn't have Income tax but California does
My question is:
1. Which one should we use? "Married filing jointly" or "Married filing separately"?
2. if "jointly", do I need to file California state income tax?
3. if "separately", can my wife deduct half the proterty tax and interest cost because of the Texas house?

Answer 1

Filing jointly will most likely be your best answer. For California, you will need to file a joint nonresident/part-year resident return. This Form 540NR. The return will report both your income and your wife's income for the year, plus your deductions for the year (the full year). This determines your worldwide taxable base for California tax purposes. California tax will be calculated on this amount to determine what you would have paid if you were both California residents for the full year.

On Schedule CA(540NR), you will compare your California source income (your wife's wages) against your worldwide income. This will determine the ratio of California source to worldwide income. This percentage is applied against California worldwide tax calculated earlier to figure out the tax liability you will have on your wife's income.

The reason California calculated nonresident and part year resident income tax this way is by using the worldwide base, it will push you into a higher tax bracket than if you just looked at California source income.

Answer 2

This gets a bit sticky. First off, you need to find out if CA will let you file with a different status than your Federal return. Some states allow this, some bar it and a few require separate returns regardless of the Federal return if only one spouse has taxable income within the state.

It's been nearly 25 since I lived in CA with a similar situation and the laws may have changed since then. CA required us to file a joint return since our Federal return was joint. My income was not subject to CA taxes (military domiciled in TX) but my wife's CA income was taxable. Only her income was taxed, but it was at the higher rate that would have applied if all of our income was taxed in CA. The TX real estate that we owned had no impact on her CA return since it was outside CA jurisdiction.

Your total tax liability will likely be lowest by filing a joint return, both Federal and CA. Your TX income isn't taxed in CA, only hers is but it will be at the higher rate due to CA's graduated income tax structure. If CA now allows a separate return with a joint federal return you'll have to figure your CA return both ways to see which way is best. The rate will be at the lower rates but you'll lose other tax benefits of a joint return.

Answer 3

they could continuously record a joint federal go back. State regulation will make sure how they could record their state returns. some require you to record an same prestige as federal. some mandate separate returns and some allow you opt for inspite of is ideal for you.

Answer 4

It depends. It needs to be put in both ways to see what the difference is.
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