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Form 2210 going from MFJ to MFS

jerry
Level 4

Client is filing MFS this year to save on California Mental Health Services Tax, but previously filed MFJ.  What AGI do I use on Screen 8, the previous year MFJ AGI, or 1/2 the previous year's AGI?  I'm checking the "joint return to single" box, but it doesn't change the amount of AGI on the 2210.

Thx

Jerry

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BobKamman
Level 13

For what it's worth, here is what the Internal Revenue Manual says about the situation:

Changes in Filing Status
  1. Taxpayers filing jointly in one of two successive years, but separately in the other, cannot, without modification, use the preceding year's tax when determining the lesser of current or prior year tax:

    1. Taxpayers filing jointly, who filed separately in the preceding taxable year, are to add the two separate tax liabilities in the preceding year for the purpose of computing their required annual payment.

    2. Taxpayers filing separately, who filed jointly in the preceding taxable year, are to compute their required annual payment by redetermining their separate share of the joint liability for the preceding year using each spouse's separate income and deductions based on the current year's filing status. For more information, see Publication 505, Chapter 4, General Rule.

  2. Taxpayers filing separately, who filed jointly in the preceding taxable year, are instructed to file Form 2210 with their return. If Form 2210 is not attached to the return, IRS will compute the penalty under the presumption that 100% of the preceding taxable year's tax was attributable to the income of that taxpayer.

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4 Replies 4
itonewbie
Level 15

If everything on the previous return was subject to community property laws, then the prior year liability for each spouse would presumably be 50% of the total.  Otherwise, you'd have to allocate the tax between each spouse based on their respective income, deductions, and credits.

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BobKamman
Level 13

I think I'm beginning to figure out this Lacerte thing, where they lead you around three sides of the barn in order to find the door you are standing in front of.  There is nothing in the 2210 instructions about AGI.  This is what IRS says:

If you file a separate return for 2020, but you filed a joint return with your spouse for 2019,
your 2019 tax is your share of the tax on the joint return. You are filing a
separate return if you file as single, head of household, or married filing
separately.

Where is it written that "your share of the tax on the joint return" is based on AGI?  Maybe there is something in the Regulations, or a Revenue Ruling from the 1960s, that elaborates on that.  Once Lacerte has you determine the AGI, does it then ask you to apportion the deductions and exemptions to arrive at taxable income?  How about the credits?  If the kids aren't from both parents, who gets the child tax credit in a community-property state, anyway?

These are the returns where you can spend more time figuring the penalty than figuring the tax. Are you billing that to the clients?  Did you ask the clients if they would rather pay you less and settle with IRS if they get a bill?  You have to tell them it's unlikely IRS will be able to figure it either. 

Upon further review, I wonder if the AGI question is only directed at whether the safe-harbor amount is 100%, or 110%, of previous year's tax.  

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BobKamman
Level 13

For what it's worth, here is what the Internal Revenue Manual says about the situation:

Changes in Filing Status
  1. Taxpayers filing jointly in one of two successive years, but separately in the other, cannot, without modification, use the preceding year's tax when determining the lesser of current or prior year tax:

    1. Taxpayers filing jointly, who filed separately in the preceding taxable year, are to add the two separate tax liabilities in the preceding year for the purpose of computing their required annual payment.

    2. Taxpayers filing separately, who filed jointly in the preceding taxable year, are to compute their required annual payment by redetermining their separate share of the joint liability for the preceding year using each spouse's separate income and deductions based on the current year's filing status. For more information, see Publication 505, Chapter 4, General Rule.

  2. Taxpayers filing separately, who filed jointly in the preceding taxable year, are instructed to file Form 2210 with their return. If Form 2210 is not attached to the return, IRS will compute the penalty under the presumption that 100% of the preceding taxable year's tax was attributable to the income of that taxpayer.

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jerry
Level 4

Thanks to all of you who responded.

In California, we have a 1% "Mental Health Services Tax" (MHST)  on taxable income over $1 million *per return."  So if a joint taxpayer has a high income year (like a house sale, or lots of stock sales), it pays to split the return into MFS, save up to $10,000 in MHST, and pay the slight cost of a Federal MFS over MFJ.  But that leads to all sorts on interesting complexities, like the one I asked about.

Again, many thanks.

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