


Ask the community...
I'm also in a community property state (Arizona) and had this exact issue with my husband. Here's what we found out after consulting with a CPA who specializes in this area: 1. For community property states, the legally correct way is indeed to split all community income 50/50 on Form 8958 2. For PSLF purposes, this often creates a problem because even though you're filing separately, your spouse's income effectively gets counted in your AGI 3. Some tax preparers (especially chain preparers) don't understand these special rules well What we ultimately did was hire a CPA who specialized in student loan issues to help us identify which of our income was truly separate property vs. community property. There were actually several things we could legally classify as separate property, which helped minimize the impact. Whatever you decide, just make sure both returns are consistent with each other. The biggest red flag for the IRS is when spouses in community property states report inconsistently on MFS returns.
Thank you for sharing! Did you and your spouse both use the same CPA so they could coordinate both of your returns? And did you have any issues with previous years where you might have filed inconsistently?
Yes, we definitely used the same CPA for both returns to ensure consistency. That was key to making sure our community property allocations matched up perfectly. Regarding previous years, we had indeed filed inconsistently for two years (similar to your situation). Our CPA advised that we could either amend those previous returns or simply start filing correctly going forward. Since the difference in our case wasn't enormous and we hadn't been audited, we chose to just file correctly going forward rather than opening up old returns. The CPA mentioned that the statute of limitations for most returns is 3 years, so after that time passes, your risk decreases significantly.
Speaking from personal experience in Texas (another community property state), you really need to be careful here. My wife and I did something similar - she reported only her income, I reported only mine - and we got letters from the IRS about two years later. We ended up having to amend both returns and pay some penalties and interest. The IRS specifically cited our failure to properly allocate community income on Form 8958. If I were you, I'd strongly consider: 1. Having your wife amend her return to properly split community income 2. Filing your return correctly (as the preparer suggests) 3. At minimum, making sure both returns use the SAME methodology The inconsistency between your returns is more likely to trigger questions than both of you doing it the same way, even if that way isn't technically correct.
Something I learned the hard way after a few years running my production company - make sure you're tracking your state film incentives properly! Depending on your state, these can be tax credits, rebates, or grants, and they're all treated differently for tax purposes. I'd recommend creating a separate tracking system just for incentives and credits. Also, if you're filming in multiple states, you might need to file taxes in each of those states if you meet their thresholds. And please don't forget about sales tax! Some states require you to pay sales tax on production equipment and services, while others have exemptions for qualified productions. Worth checking before you make big purchases.
Do film tax credits count as income in the year you receive them? I'm getting a small incentive payment from my state film commission next month for a project I completed last year, and I'm not sure if that's 2024 income or if I should have somehow accounted for it in 2023.
The timing of film tax credit recognition generally depends on when you have the legal right to receive the payment. If your production was completed last year but the credit wasn't approved until this year, it's typically 2024 income. However, it also depends on your accounting method. If you're using the cash method (most small productions do), you'd report it as income when you actually receive the payment. If you're using the accrual method, you'd record it when you earned the right to receive it. Since it sounds like the state is just now processing your payment for last year's work, this would likely be 2024 income. But definitely confirm this with your accountant since tax credit treatment varies by state and situation.
Don't forget about tracking non-cash compensation! If you're giving crew members credit in the film or rights to use footage for their reels in lieu of some payment, technically that has value. Same with giving people copies of the film or other perks. I learned this when I got audited two years ago. The IRS questioned why some of my "staff" didn't receive 1099s despite being listed in credits. It became a whole thing about whether their compensation fell below reporting thresholds when including non-cash benefits. Now I document EVERYTHING - meals provided, equipment they get to use, credit value, etc. Better to have too much documentation than not enough!
That's wild, I never would have thought about credit as compensation! How do you even calculate the value of a film credit for tax purposes? Is there some kind of standard rate card for that?
Just want to add something that nobody mentioned yet - make sure your invoice or W9 form matches EXACTLY how your name appears on your tax registration. I had this issue because my FEIN was registered under "John Q Smith Consulting" but my invoices just said "John Smith Consulting" - that tiny difference caused payment rejections. For a sole prop, the safest approach is to use your SSN and your exact personal name as it appears on your Social Security card, then "doing business as" your business name. That's worked for me with all clients for the past 5 years without any kickbacks from payment systems.
That's really helpful. So for my invoices, should I format it as "My Full Name dba Business Name" and then just use my SSN on the W9 form? Or should I include both the SSN and FEIN on different parts of the form?
You should format it exactly as "Your Full Legal Name dba Business Name" on your invoices, and then on your W9, check the "Individual/sole proprietor" box, use your personal name on the "Name" line, your business name on the "Business name/disregarded entity" line, and your SSN in part I. You can include your EIN in Part II if you want, but it's cleaner to just use your SSN for everything unless you specifically need the EIN for something like business banking. This way, everything matches what the IRS has on file for you personally, which prevents these verification hiccups.
quick question - does anyone know if having this kind of EIN/SSN mismatch trigger any kind of audit flags with the IRS? I'm dealing with the same issue and now I'm worried this might cause bigger problems down the road
Another thing to consider with your plan: FBAR requirements for your Canadian accounts. As a green card holder, you'll need to file FinCEN Form 114 annually to report your foreign financial accounts if their aggregate value exceeds $10,000 at any point during the year. Also, be cautious with your TFSA. While it's tax-sheltered in Canada, the US doesn't recognize its tax-free status. Any income earned in your TFSA will be taxable on your US return, which is why closing it before becoming a US resident is a good move. Have you considered the implications for any Canadian retirement accounts like RRSPs? Under the treaty, you can defer US taxation on RRSPs, but you need to file Form 8891 to make this election.
Thank you for bringing up these important points! I have about $35K combined in my Canadian accounts, so I'll definitely need to file the FBAR. You're right about the TFSA - that's exactly why I'm planning to close it before October. Regarding RRSPs, I do have about $80K in an RRSP. I wasn't aware of Form 8891 - does that need to be filed annually or just once?
The good news is that Form 8891 was actually eliminated in 2014! The IRS now automatically recognizes the tax deferral for RRSPs under the US-Canada tax treaty without requiring a specific form. You'll still need to report the existence of the RRSP on your FBAR and potentially on Form 8938 (Statement of Foreign Financial Assets) if you meet the filing threshold, but the income can continue to grow tax-deferred. One other consideration for your plan: make sure you've researched any state-specific requirements. California, for example, doesn't always follow federal treatment of foreign income and may have different rules regarding your Canadian accounts and investments compared to federal regulations.
Have you factored in potential "exit tax" implications when leaving Canada? If the fair market value of your worldwide assets exceeds CAD $1.6 million at the time you become a non-resident, you might be subject to a deemed disposition of your property, potentially creating additional tax liability.
This is incorrect information. Canada doesn't have an "exit tax" in the same way as the US. What Canada has is a deemed disposition rule where certain properties are treated as if they were sold at fair market value when you cease Canadian residency. However, this typically doesn't apply to cash, personal-use property, most registered plans like RRSPs, and certain real property located in Canada.
Thanks for bringing this up. I've been concerned about this potential issue. My total assets are around CAD $1.3 million, so I should be under that threshold. Most of my assets are either in my RRSP, cash, or the condo which I'm planning to sell before becoming a non-resident. Would there be any other assets I should be concerned about for the deemed disposition rules?
Alice Coleman
One thing to keep in mind with Form 1125-A errors is to check if the mistakes affected your Schedule C and subsequently your Schedule SE for self-employment tax. When the IRS makes errors on cost of goods sold, it can cascade through your return and impact multiple calculations. In my experience as a small business owner, it's worth taking the time to recalculate everything carefully before submitting your 1040-X. In particular, make sure your corrected 1125-A properly flows to your Schedule C, which then affects your AGI, any AGI-based credits, and your self-employment tax.
0 coins
Molly Chambers
ā¢That's a really good point I hadn't considered. If they messed up my COGS on the 1125-A, it definitely would have changed my Schedule C profit and then my self-employment tax on Schedule SE. Should I submit copies of all three forms with my amendment or just the 1125-A?
0 coins
Alice Coleman
ā¢You should submit the entire amended tax return package, including the corrected 1125-A, Schedule C, Schedule SE, and main 1040 form. This gives the IRS a complete picture of how the corrections flow through your entire return. When preparing your 1040-X, you'll need to show the original figures that were processed, the corrected figures, and the difference between them. Make sure your explanation in Part III clearly traces how the 1125-A errors affected each subsequent form. For example: "The IRS incorrectly transcribed line 2 of Form 1125-A as $8,400 instead of the correct amount of $11,250. This error reduced my Cost of Goods Sold by $2,850, which incorrectly increased my Schedule C profit and subsequently my self-employment tax on Schedule SE." This level of detail helps the IRS follow your calculations and process your amendment more efficiently.
0 coins
Owen Jenkins
Has anyone here used tax software to prepare their amendment for IRS errors? I'm in a similar situation with Form 1125-A mistakes but wondering if TurboTax or H&R Block can handle this kind of correction effectively.
0 coins
Lilah Brooks
ā¢I used TaxAct to prepare an amended return last year when the IRS messed up my itemized deductions. It worked fine but you have to be very careful. The software doesn't automatically know that you're correcting IRS errors versus changing your own entries. Make sure you use the explanation section to clearly state that you're fixing IRS transcription errors, not changing your original filing.
0 coins