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Taxpayer exits California and establishes residency in Arizona. Spouse remains in California. How to file state returns?

Christopher
Level 1

Taxpayer leaves California in early November having worked there up until he establishes residence in Arizona where he obtained employment.

His spouse remains in California and works there.

From what I have researched, it seems this couple can file joint non-resident returns for both states.

Since both CA and AZ are community property states, all income will be reported on both returns, with AZ receiving a tax credit for taxes paid to California.

Please validate if this approach will work in Lacerte.  If so, what would be some suggestions.  

Would it make more sense (apart from the extra time) to file four married filing separate returns?

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1 Solution

Accepted Solutions
George4Tacks
Level 15

Your approach will work. You will need to be careful doing the input to allocate ALL income (not just wages) to the portion of the year in each state, using Ctrl + E and splitting those items. 

MFS does not seem to cure any ills. It will incur costs for more returns and may generate a higher federal tax. You will need to play with all possibilities. Make the TP SSN all 9's to do the "play" returns and you will not incur REP fees. I would wait for the next release before committing too much time to the process. 


Here's wishing you many Happy Returns

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9 Comments 9
George4Tacks
Level 15
Does taxpayer intend to return to CA? Is there a CA home owned?
We had a lot of this when GM and Ford closed and TP moved. I had some clients file as CA residents for years, even when the TP moved to MO, but worked in KS and the spouse stayed in CA. There were several credit paid to other state contortions to go through. See L on page 9 of https://www.ftb.ca.gov/forms/2016/16_1031.pdf

Here's wishing you many Happy Returns
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George4Tacks
Level 15
@Christopher Any more input?  How about some comments over at https://accountants-community.intuit.com/questions/1788526-intuit-commercials-during-nfl-game-sunday  Join the party!!! put on a :tada: and come over

Here's wishing you many Happy Returns
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Christopher
Level 1
Hi George.  Sorry for the delay.  Taxpayer does not intend to return to CA.  Yes, he and his spouse own a house in CA in which the spouse lives.
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George4Tacks
Level 15

Your approach will work. You will need to be careful doing the input to allocate ALL income (not just wages) to the portion of the year in each state, using Ctrl + E and splitting those items. 

MFS does not seem to cure any ills. It will incur costs for more returns and may generate a higher federal tax. You will need to play with all possibilities. Make the TP SSN all 9's to do the "play" returns and you will not incur REP fees. I would wait for the next release before committing too much time to the process. 


Here's wishing you many Happy Returns
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abctax55
Level 15

This is the go-to resource for CA questions:

https://www.caltax.com/shop/publications/spidells-analysis-and-explanation-of-california-taxes-2019-...


"*******Tax software is no substitute for a professional tax preparer*******
( Generic Comment )"
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aeh-cpa
Level 3

Hello.

I have a similar situation where husband is AZ resident, spouse became CA resident in 2021.  How exactly do you enter the data to calculate MFJ state returns correctly?  I keep getting diagnostic error regarding the wage entries for CA when I try to allocate 1/2 of AZ wages to CA.

Also, how are you checking the box regarding Resident State as of 12/31 and Full Year Resident check box?

Thank you.

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BobKamman
Level 15

Arizona return would show all of H's income and all of W's income until W moved -- then half of what W earned in CA since it's H's.  CA return would show all of W's income after the move and half of H's income after the move.  Usually the resident state allows credit for nonresident taxes paid, but AZ and CA are weird, the nonresident state gives credit for tax paid to the resident state.  I would tell them to go away and don't come back until they both moved to Nevada.

Or Texas.  

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aeh-cpa
Level 3

I understand the income split.  My problem is the actual mechanics of data input in Lacerte.  I can't get the wage splitting right without getting an e-file diagnostic error for CA.  How exactly do I enter the W-2s so that half is reported for each state?

Thanks.

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BobKamman
Level 15

You can spend all day fighting the software, or you can take an hour and file a paper return with an attachment that shows how you came up with the numbers.  

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