COMPREHENSIVE PROBLEMS Matt and Sandy reside in a community property state. Matt left home in April 2017 be- cause of disputes with his wife, Sandy. Subsequently, Matt earned $15,000. Before leaving home in April, Matt earned $3,000. Sandy was unaware of Matt’s whereabouts or his earnings after he left home. The $3,000 earned by Matt before he left home was spent on food, housing, and other items shared by Matt and Sandy. Matt and Sandy have one child who lived with Sandy after the husband left home a. Is any portion of Matt’s earnings after he left home taxable to Sandy? b. What filing status is applicable to Sandy if she filed a return? c. How much income would Sandy be required to report if she filed? d. Is Sandy required to file?
a. As per publication 555 of IRS, the income from community property is equally distributed to taxpayer and his spouse if they file federal tax return separately.
However they are some special rules which exempt spouses if they had no knowledge about the inclusion of community income, then they may not consider income from community after separation. This is mostly based on state law, here as per some state law’s we can see that the access to the funds are important, unless spouse have some access to the funds they are not considered as income.
b. Married Filing Separately
c. Sandy’s income = $3,000* 50% = $1500