5 Tax Tips for California Residents
California is one of nine community property states, which requires special planning when it comes to a married couple's federal tax return. Here are five tax tips for California residents:
Know the law. California law governs what married couples can consider to be separate when it comes to income and assets for tax purposes. If you file a joint return, you report all income from assets. If you file separate returns, you must follow California law on what constitutes separate and community property.
Keep good records. To support deductions, you need to keep good records of all payments and transactions. Some of the types of separate property that may require documentation include:
· Ownership of assets prior to marriage and income generated by these assets
· Inheritances or personal gifts received prior to or during the marriage
· Separate funds used to buy or improve property that is jointly owned
· Separate funds used to pay for medical or personal expenses
· Individual IRA contributions and withdrawals
· Separate business income
· Community assets that have been legally changed to separate assets
Calculate tax two ways. If you use a software program like TurboTax, you can easily calculate your tax two ways - filing jointly and separately - to discover which filing option saves you the most.
Use estate planning to protect your spouse. You can reduce capital gains tax that a surviving spouse may face when selling inherited jointly owned property through estate planning. By creating a survivorship agreement, the property can pass to a surviving spouse outside of probate.
Know the rules for same-sex marriages. While California community property law extends to same-sex registered domestic partners, the IRS does not recognize this relationship for federal income tax purposes. Same-sex partners must be married in California or another state that recognizes same-sex marriage in order to qualify. Same-sex couples that are registered domestic partners must file separate federal income tax returns and include separate and community income.
The Flanigan Law Group provides Southern California residents with personal attention for estate planning, administration and litigation legal services. When disputes between families, arise, they are very successful in resolving legal estate issues quickly and efficiently while preserving financial and emotional resources. Contact the Flanigan Law Group at 949-450-0041.