The filing status you choose can significantly affect what you eventually owe Uncle Sam.
In terms of filing status, all taxpayers have five choices and what you pick affects you in many ways – your qualification for some deductions, credits, and exemptions that will eventually bring down your tax bills.
There are cases that you might not even have to file based on your status. Above all, your filing status should give the lowest tax.
As a result, there are various filing statuses and the qualification criteria:
Single:
Every unmarried taxpayer, never married, divorced, and legally separated are classified as single. Also, you are single in the entire tax year provided you were single on the year's final day.
(MFJ) Married Filing Jointly
You are married for the entire tax year, provided you were still married on the final day of the year. This also applies to same-sex marriage. In other words, all married couples can take the MFJ route, no matter the gender.
Joint filing mandates all couples to report their entire income on a single 1040 Form. However, both parties will be liable for all or any tax error, interest, or penalty now and in the future. It applies even if a single partner earned the entire income.
MFJ status offers a series of tax credits that are unavailable to another filing status.
(MFS) Married Filing Separately
Married couples who go via this route distinguish their income and file their independent tax returns. This is a good choice, for example, in a case where a partner has a substantial medical bill. Since such costs need to be above a particular percentage of the filer's income before they can be deducted, the deduction threshold becomes achievable if the couple only uses the qualified spouse's earnings and files separately.
Most times, couples have discovered that separate filing will make them pay more than a joint return. For some cases, one spouse's tax rates will shoot up more than what they will have with joint filing. In the same way, separate filings by couples make them lose a couple of tax deductions and credits.
Except you have to file separately, ensure you know your tax bill on joint and separate filing status. This can help you arrive at the lowest filing status.
(HOH) Head of Household
This unique filing status applies to all unmarried filers who provided above 50% of their home running costs and a qualifying individual who lived with them in the same house for over six months.
You get a favorable tax rate compared to single or married tax filing status. Also, they qualify for a substantial standard deduction compared to single filers.
Qualifying Widow(er) that has a dependent kid
One might still submit a joint return for the year that the partner died. After this, you can switch status and file as a qualifying widow or widow(er).
It is possible to use this filing status for two years after the partner's death. The idea is that the spouse alive took care of a dependent kid who lived with you for the entire tax year. In this period, more than half of the cost of keeping the home lies on the shoulder of the taxpayer.
Conclusion
Selecting the correct filing status is not black and white in many cases. Some people find out that they might be eligible for more than a single status. A divorced mother falls in this case. While she might file as single, a more intelligent move will be to file as a head of household since the care of the dependent kid lies on her. The head of the household status gives her a lower tax rate than a single status alongside a more significant standard deduction.
As a result, ensure you review your situation against various filing statuses. You can check IRS Pub 501 for more info on the requirement for each class, alongside some examples, exceptions, and guides helping to choose the correct filing status.
Don’t forget that Uncle Sam is not against you taking the filing status that gives you the least tax bill.
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