Helping Taxpayers Understand Different Filing Statuses
Getting ready for tax return season, but unsure of how to file? Married? How do you know whether or not to file jointly or separately?
Taxpayers don’t typically think about their filing status until they file their taxes. However, your status could change during the year, so it’s always a good time for a taxpayer to learn about the different filing statuses and which one they should use.
It’s important a taxpayer uses the right filing status because it can affect the amount of tax they owe for the year. It may even determine if they must file a tax return at all. Taxpayers should keep in mind that their marital status on Dec. 31 is their status for the whole year.
Sometimes more than one filing status may apply to taxpayers. When that happens, taxpayers should choose the one that allows them to pay the least amount of tax.
The following are five filing statuses and a description of who claims them:
Normally this status is for taxpayers who aren’t married, or who are divorced or legally separated under state law.
- If you’re legally divorced by the last day of the year, the IRS labels you unmarried for the whole year. Even if you filed jointly before, if your marriage is annulled, the IRS also considers you to be unmarried.
- The IRS can make you use the “married filing jointly” or “married filing separately” status if you get a divorce just so you can file single and then remarry your ex in the next tax year. Translation: Don’t try the “getting divorced every New Year’s Eve for tax purposes” trick – the IRS is onto it.
Married Filing Jointly
If taxpayers are married, they can file a joint tax return. When a spouse passes away, the widowed spouse can usually file a joint return for that year.
- Filing a joint tax return allows you to combine incomes and qualify for earned income tax credit, tax breaks that leave you with a smaller bill, exclusion or credit for adoption expenses, and child/dependent tax credit. If you and your spouse have significantly different salaries, you may be able to lower your overall joint taxes by being placed into a lower bracket.
Married Filing Separately
A married couple can choose to file two separate tax returns. This may benefit them if it results in less tax owed than if they file a joint tax return. Taxpayers may want to prepare their taxes both ways before they choose. They can also use this status if each wants to be responsible only for their own tax.
- If you or your spouse are making significantly more/less than the other, unless you’re looking to take on any tax penalties they may have, it’s generally better to file separately. Also, if either party currently has an IRA, there are restrictions associated with combining incomes.
Head of Household
In most cases, this status applies to a taxpayer who is not married, but there are some special rules. For example, the taxpayer must have paid more than half the cost of keeping up a home for themselves and a qualifying person. Taxpayers should check all the rules and make sure they qualify to use this status.
- You can’t use this tax filing status if you’re simply the one who makes the most money. In the eyes of the IRS, this filing status is only for unmarried people who have to support others.
- The IRS considers you unmarried if you’re not legally married, however, you can also be considered unmarried for this purpose if your spouse didn’t live in your home for the last six months of the tax year (temporary absences don’t count). You also must have paid more than half the cost of keeping up the house, and that house was your child’s main home. The cost of keeping up a home includes the property taxes, mortgage interest or rent, utilities, repairs and maintenance, property insurance, food and other household expenses.
- To use this filing status, there has to be a “qualifying person” involved. In general, that can be a child under 19, or under 24 if he/she is a student, who lives in your house for more than half the year. It can also be your mother or father. In that case, mom or dad doesn’t have to live with you — you just have to prove you provide at least half their support. In some situations, your siblings and in-laws also count if you provide at least half their support. Check with your enrolled agent for specifics.
Qualifying Widow(er) with Dependent Child
This status may apply to a taxpayer if their spouse died during one of the previous two years and they have a dependent child. Other conditions also apply.
- If your spouse died during the tax year and you could’ve used the “married filing jointly” status before his or her death (even if you didn’t actually file jointly), you can file jointly in the year your spouse died. Then, for the next two years you can use the qualified widow or widower status if you have a dependent child. For example, if your spouse died in 2017 and you haven’t remarried, you can file jointly in 2017 and then file as a qualified widow or widower (also called “surviving spouse”) in 2018 and 2019.
- If the children are already out of the house when your spouse dies, this status probably won’t work for you. You have to have a qualifying child living with you. Also, you must provide more than half of the cost of keeping up the house during the tax year.
What it gets you: This allows you to file as if you were married filing jointly. You’ll receive a much higher standard deduction and better tax bracket situation than if you filed as single.
If you’re unsure of which filing status you should claim, Jeffrey Schneider, EA, CTRS, NTPIF can help you figure out which is the proper filing status for you. This will save you the most money possible.
Jeffrey Schneider, EA, CTRS, NTPI Fellow has the knowledge and expertise to help you reach a favorable outcome with the IRS. He is the head honcho at SFS Tax & Accounting as well as an Enrolled Agent and a Certified Tax Resolution Specialist.
Now What? I Got A Tax Notice From The IRS. Help! Defining and deconstructing the scary and confusing letters that land in your mailbox. Jeff defines and deconstructs the scary and confusing letters in a fashion that mixes attention to detail with humor and an intricate clarification of what is what in the world of the IRS.