TAX TIP No. 5
Status makes a difference in your tax bill
What's your filing status? It may sound like
a simple question, but the correct answer could make a difference in your tax
What you ultimately have to pay the Internal Revenue Service
rests in large part on your filing status. There are five official choices, and
the one you pick also determines whether you can take certain tax deductions or exemptions that could lower your final tax bill.
In some cases, your
status can even be the deciding factor in whether you have to file at all. So
picking the right one when you file is crucial.
Single: This applies to never-married, unmarried and divorced taxpayers.
You are considered single for the whole year if you were legally single on the
last day of the year.
Married filing jointly: In this case, as with 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. And regardless of what your state says about marriage for
same-sex couples, federal law -- and therefore the IRS for tax purposes -- considers
only a legal union between a man and woman as a marriage.
you file jointly, both husband and wife report all their income on one Form 1040.
Both filers may be held responsible for any tax (or subsequent penalty and interest)
due. This is the case even if only one spouse earned all the income. On the plus
side, the married-filing-jointly option does offer some tax credits that are not
available under other filing statuses.
Married filing separately: Here couples segregate their income, deductions
and exemptions, and file two individual returns. This might be advisable in cases
where, for example, one spouse had large medical expenses. Because these costs must
exceed a percentage of the filer's income before they are deductible, using only
the eligible spouse's earnings by filing separately might make that deduction
threshold more attainable.
In most cases, however, couples
find they will generally pay more combined tax on separate returns than they would
on a joint return. In some cases, at least one spouse's tax rate ends up higher
than it would have been under a joint filing. Also, when a husband and wife file
separate returns, they lose some tax credits and deductions they could have taken
if they'd filed jointly.
Unless you are required to file separately,
you should figure your tax on a joint return and on separate returns. This
way you can make sure you are using the method that results in the lowest combined