Legal Question in Tax Law in Texas

Re: Spouse trying to cheat the tax man

You are correct in concluding that you must not file a joint return with your wife if she insists on omitting income from the sale of her stock options. You can always go back later and amend from separate to joint if that will save you money, but you can't go the other way. In other words, once you file jointly with her, knowing that the return omits her stock option income, two things happen: First, you have committed a crime (filing a false return), and second you have agreed to be jointly and severally liable for the additional tax, penalties and interest which the IRS will eventually assess. The other aspects of your question, i.e. who gets the deductions, depends on who paid the deductible expenses. This is difficult where you put your respective earnings into a joint account and pay those expenses from the joint account. But if nothing else, you can split the deductions in proportion to your income. Again, you can fix this later if you amend to a joint return, but unless and until your wife agrees to report all of her income, you should not join her in filing a joint tax return.