You are not my tax advisor, but... We're a same-sex married couple in California, trying to make heads or tails out of the (confusing) IRS tax-filing pickle that is in effect for the 2010 tax year. We have to combine our community income, split it in two, add any individual income to the respective partner's form, and then create two separate forms for the IRS for each of us, but check the "single" category for filing status. Here's the dilemma: He gets a W2 (salaried employee). I freelance (several 1099s and a Schedule C). Do I have to duplicate the entire Schedule C across both forms, and put half of each deduction on my form and half on his? :-0 Or do I do the full deductions on my form and fill in something on the adjustment line (line 21, I think it is) on his 1040 form as a way of evening out the reporting?
posted by kentk to Law & Government (8 answers total) 1 user marked this as a favorite
Some background: In an effort to comply with state law yet still avoid conflict with DOMA (the federal government's law banning federal recognition of same-sex marriage, domestic partnerships, or civil unions), the IRS last year said it would respect the community-property provisions of California, Nevada, and Washington state law, much as it does for opposite-sex couples. So all of those couples now have to file essentially the same as an opposite-sex married couple filing separately in a community property state, yet file jointly for their state taxes. Has your head stopped spinning yet?
Intuit finally released an update to TurboTax in July that was supposed to help us (after admitting earlier in the year that they needed more time, since the ruling only came down in February; yes, we filed an extension). But the update really didn't help that much; it said that we were to prepare a spreadsheet, or worksheet, outlining each person's income, whether or not it was community or individual income, and tallying up which parts get divided in half. Then we report the requisite amounts on each person's 1040 form. And then, when the federal forms are done, we combine everything together into a fake new federal form, which the IRS never sees, and fill that out as if we were filing jointly... because that fake form them becomes the basis for the California Form 540 we send to Sacramento.
So far, I have scoured the web and have yet to find an adequate answer for this question. Yes, I could create two separate Schedule Cs and chop in half each and every deduction for expenses, and the like, but that sure seems like a mighty big hassle. There has to be an easier way than that to equitably split and report the income without creating exactly double or triple the paperwork, right?
(Yes, cue the obligatory "You're dealing with the government; what makes you think they'll make it easy?" riposte from the peanut gallery. Duly noted.) :-)
To add insult to injury, there's the whole issue of self-employment taxes this time around, where it appears the IRS demands that we split that up as well, which they wouldn't do with straight married couples, because spouses are exempt from community-property splitting with regards to self-employment taxes; the person managing the business gets the credit for the self-employment taxes. But guess what? Since we are not considered actual spouses in the IRS' eyes (thanks to DOMA), we have to split that in half, meaning that I'd only get credit for half of my self-employment taxes. Arrgh. And then my husband would pay self-employment tax, which would be credited to his Social Security account. This may not be much of an issue if our marriage were recognized by the feds, and hopefully it will in 20 or so years when we retire, but still... it sure is inequitable, eh?
If anyone else has been through this morass this year and lived to tell the tale in regards to my question about Schedule C, I'd love to hear what you did.