Hello Tax Experts,

In 2010 my wife earned in Arizona and I earned only in California.Since I have not established residency in California, I am planning non-resident California tax. Earlier we have been filing jointly the federal and AZ state tax.

What should I do this year
1. File federal jointly? Or separately?
2. File jointly AZ tax? Can I deduct my income as I earned in CA?
3. File Non-Resident CA tax? Can I deduct my wife's income as she earned only AZ
Income?

Thanks

To be clear: you live in AZ, and work in CA, commuting across the border each day, correct? If so, then you first calculate your CA tax bill as a non-resident. In essence you have to report all income (including your wife's), but you will pay CA income tax only on your CA source of income (your wages). Then you do your AZ tax filing, as married filing jointly. Since you reside in AZ you will have to report ALL your income, and do an initial tax calculation based on the total income. But then you take a credit for taxes paid to other jurisdictions, namely CA. Bottom line is your AZ tax bill will NOT include taxes on your CA wages.

Thanks for your answer. Just to clarify, I do not commute everyday but go to AZ on the weekends if I am in CA. As part of my job, I am in CA only about 10 days and rest travel outside CA. So still I your answer is OK?? As I have not established any sign of residency here i.e. driver license, car registration, buying a home, family in Arizona etc.

The other question I have is what wages do I take for calculating CA tax. Would it be only my wages? (not including my wife's wages even when we will be filing jointly for the federal taxes

Thanks again

I think filing as a non-resident for CA is still OK.

The CA tax form requires you to report ALL your income - your's and your wife's, and also any non-earmed income like interest, dividends, capital gains etc. But you also show how much of your income is "CA-source" and how much is "non CA-source." The CA-source income would be your wages, and the non-CA source income would be your wife's wages plus unearned income. Then you determine what percentage of your total income is CA-source. Then you calculate a preliminary CA tax bill based on your total income, and finally you multiuply that figure by the percentage that is CA-source income that you calculated earlier. So while you have to report ALL your joint income to CA, you end up paying taxes to CA only your CA-source wages.

Thanks for the clarification. So for the AZ tax we show ALL income (i.e. federal adjusted gross) and reduce the AZ tax by what I pay as CA tax.. Is this right? Or reduce the ALL income by CA income and then calculate AZ tax?

So for the AZ tax we show ALL income (i.e. federal adjusted gross) and reduce the AZ tax by what I pay as CA tax.. Is this right ??


Right. You use AZ form 140, and take the credit by completing AZ form 309 and showing the credit on line 27 of form 140. Follow the directions for the tax form and it will step you through it.

I am in the same situation and if you read the instrucktions for the AZ Form 309, you cannot claim the credit for California.

I am in the same situation and if you read the instrucktions for the AZ Form 309, you cannot claim the credit for California.

Where does it say that? The instructions for form 140 are here:
http://www.azdor.gov/LinkClick.aspx?fileticket=dBTRKCrC65M%3d&tabid=257&mid=878

Go to page 17, in the section about line 27 of Form 140, and read item 7. It states:

Credit for taxes paid to another state or country. You may qualify for this credit if you paid tax to Arizona and another state of country on the same income. Use form 309 to figure your credit.

Here is a link to form 309:
http://www.azdor.gov/LinkClick.aspx?fileticket=N7JWGGdSQAo%3d&tabid=252&mid=870