While preparing your tax return, the first thing that is required of you is to choose your filing status. Your filling status is a determinant of many factors regarding your tax return. The benefit of choosing the right filing status is that you will be able to get the lowest taxes and the biggest refund.
It is your filling status that will determine things like filing requirements, tax rates, standard deduction, and eligibility for tax credits and tax deductions.
Now that you know the cruciality of choosing the right tax filing status, how can you select the most appropriate one for yourself? This is what you're about to learn in this article.
Currently, there are five major tax filling status option, and we shall be discussing them one after the other.
The Single Filling status applies to people who are unmarried on the last day of the tax year. This includes- the never-married, unmarried, divorced, and legally separated people. Also, if your marriage is annulled, the IRS will consider you unmarried even if you filed jointly in previous years. Once you are legally single on the last day of the year, you are considered single. One of the attributes of this filling status is that single taxpayers who can claim a dependent may be eligible for the Head of Household filing status, which will provide more tax benefits. As a single taxpayer, you do not qualify for another filing status.
However, never be tempted to be tricky by divorcing your partner every New Year’s Eve for tax purposes and then get married again the next day. The IRS is onto that trick.
Just like the single status, you are considered married for the whole tax year as long as you were married on the last day of the tax year, even if you got married a day before the New Year. However, it must be noted that the concept ‘married’ is not restricted to marriage between different genders alone, because the U.S. Supreme Court ruling in the 2015 Obergefell case has legalized same-sex marriages in all the 50 states. This simply means that the filing status rules now apply to all married couples, regardless of gender, nationwide.
Please note that if you were legally divorced by the last day of the year, the IRS considers you unmarried for the whole year, meaning that you can’t file jointly that year. Also, if your spouse died during the tax year, the IRS considers you married for the whole year. You can file jointly that year, even if there are no kids in the house.
When filing Joint, the couple will report all their income, and they are both responsible for the taxes and any interest or penalties due. This means you could be on the hook if your spouse doesn’t send the check or flubs the math.
On the plus side, the married filing jointly option does offer some tax credits that are not available under other filing statuses. If you and your spouse decide to file a joint return, your tax may be lower than your combined tax for other filing statuses. Also, the standard deduction (if you do not itemize deductions) may be higher, and you may qualify for tax benefits that do not apply to other filing statuses.
As a married man/woman, you may select to file separately. This is ideal for you if you want to be responsible only for your tax. Some couples may find this filling option as a money-saving option compared to joint filing.
This is selected most by high income earners, people who feel/think their spouses may be hiding income, or people whose tax liability issues.
If you and your spouse do not agree to file a joint return, you have no option than to use this filing status unless you qualify for head of household status.
You may be able to file as head of household if you meet all three of the following requirements:
1. "You are unmarried or considered unmarried on the last day of the year."
2. "You paid more than half the cost of keeping up a home for the year.
3. "A qualifying person lived with you in the home for more than half the year (except for temporary absences, such as school). However, if the qualifying person is your dependent parent, he or she doesn't have to live with you."
This status applies to unmarried taxpayers who, during the tax year, provided more than half the cost of keeping up a home for the filer and a qualifying person who lived in the home for more than six months. Tax rates for qualified filers usually are more favorable than those in the single or married-filing-separately categories. Head-of-household filers also get a larger standard deduction amount than do single filers. In some cases, married persons who have not lived with their spouses may qualify for this status.
You may be eligible to use qualifying widow(er) with dependent child as your filing status for 2 years following the year your spouse died. For example, if your spouse died in 2015 and you have not remarried, you may be able to use this filing status for 2016 and 2017. This filing status entitles you to use joint return tax rates and the highest standard deduction amount (if you do not itemize deductions). This status does not entitle you to file a joint return.
*If your spouse died during the current tax year, you can use married filing jointly as your filing status for this year if you otherwise qualify to use that status. The year of death is the last year for which you can file jointly with your deceased spouse.
Bishop & Associates CPA's, LLC