Irs Publication 555 - Community Property (Page 6 of 17) in pdf

Other limits may also apply to business and investment

purposes. RDPs and same-sex spouses in California re-

expenses. For more information, see Publication 535,

port community income for self-employment tax purposes

Business Expenses, and Publication 550, Investment In-

the same way they do for income tax purposes.

come and Expenses.

Sole proprietorship. With regard to net income from a

trade or business (other than a partnership) that is commu-

Alimony paid. Payments that may otherwise qualify as

nity income, self-employment tax is imposed on the

alimony are not deductible by the payer if they are the

spouse carrying on the trade or business.

recipient spouse’s part of community income. They are

deductible as alimony only to the extent they are more than

Partnerships. All of the distributive share of a married

that spouse’s part of community income.

partner’s income or loss from a partnership trade or busi-

ness is attributable to the partner for computing any

Example. You live in a community property state. You

self-employment tax, even if a portion of the partner’s

are separated but the special rules explained later under

distributive share of income or loss is community income or

Spouses living apart all year

do not apply. Under a written

loss that is otherwise attributable to the partner’s spouse

agreement, you pay your spouse $12,000 of your $20,000

for income tax purposes. If both spouses are partners, any

total yearly community income. Your spouse receives no

self-employment tax is allocated based on their distributive

other community income. Under your state law, earnings of

shares.

a spouse living separately and apart from the other spouse

Federal income tax withheld. Report the credit for fed-

continue as community property.

eral income tax withheld on community wages in the same

On your separate returns, each of you must report

manner as your wages. If you and your spouse file sepa-

$10,000 of the total community income. In addition, your

rate returns on which each of you reports half the commu-

spouse must report $2,000 as alimony received. You can

nity wages, each of you is entitled to credit for half the

deduct $2,000 as alimony paid.

income tax withheld on those wages. Likewise, each RDP/

IRA deduction. Deductions for IRA contributions cannot

California same-sex spouse is entitled to credit for half the

be split between spouses (or RDPs/California same-sex

income tax withheld on those wages.

spouses). The deduction for each spouse (or RDP/Califor-

Estimated tax payments. In determining whether you

nia same-sex spouse) is figured separately and without

must pay estimated tax, apply the estimated tax rules to

regard to community property laws.

your estimated income. These rules are explained in Publi-

Personal expenses. Expenses that are paid out of sepa-

cation 505.

rate funds, such as medical expenses, are deductible by

If you think you may owe estimated tax and want to pay

the spouse who pays them. If these expenses are paid

the tax separately (RDPs and same-sex spouses in Cali-

from community funds, divide the deduction equally be-

fornia must pay the tax separately), determine whether you

tween you and your spouse.

must pay it by taking into account:

1. Half the community income and deductions,

Credits, Taxes, and Payments

2. All of your separate income and deductions, and

The following is a discussion of the general effect of com-

3. Your own exemption and any exemptions for depen-

munity property laws on the treatment of certain credits,

dents that you may claim.

taxes, and payments on your separate return.

Whether you and your spouse pay estimated tax jointly

Child tax credit. You may be entitled to a child tax credit

or separately will not affect your choice of filing joint or

for each of your qualifying children. You must provide the

separate income tax returns.

name and identification number (usually the social security

If you and your spouse paid estimated tax jointly but file

number) of each qualifying child on your return. See your

separate income tax returns, either of you can claim all of

tax package instructions for the maximum amount of the

the estimated tax paid, or you may divide it between you in

credit you can claim for each qualifying child.

any way that you agree upon.

Limit on credit. The credit is limited if your modified

If you cannot agree on how to divide it, the estimated tax

adjusted gross income (modified AGI) is above a certain

you can claim equals the total estimated tax paid times the

amount. The amount at which the limitation (phaseout)

tax shown on your separate return, divided by the total of

begins depends on your filing status. Generally, your credit

the tax shown on your return and your spouse’s return.

is limited to your tax liability unless you have three or more

If you paid your estimated taxes separately, you get

qualifying children. See your tax return instructions for

credit for only the estimated taxes you paid.

more information.

Earned income credit. You may be entitled to an earned

Self-employment tax. This section discusses the effect

income credit (EIC). You cannot claim this credit if your

of community property laws on the imposition of

filing status is married filing separately.

self-employment tax on the earnings and profits of a sole

If you are married, but qualify to file as head of house-

proprietorship and partnerships. For the effect of commu-

hold under rules for married taxpayers living apart (see

nity property laws on the income tax treatment of income

Publication 501, Exemptions, Standard Deduction, and

from a sole proprietorship and partnerships, see

Wages,

Filing Information), and live in a state that has community

earnings, and profits

and

Partnership

income, earlier. The

property laws, your earned income for the EIC does not

following rules only apply to persons married for federal tax

include any amount earned by your spouse that is treated

Page 6

Publication 555 (March 2012)

Irs Publication 555 - Community Property Page 6

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