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Your tax-filing status could make a big difference in what you will ultimately owe the IRS.
There are five choices, and the one you pick 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. And sometimes, a filer might qualify for more than one. In that case, you’ll want to choose the one that gives you the lowest tax bill.
So picking the right status when you file is crucial.
This applies to never-married, unmarried, legally separated and divorced taxpayers. You are considered single for the whole year if you were legally single on the last day of the year.
2. 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. Thanks to the U.S. Supreme Court ruling in the 2015 Obergefell case, same-sex marriages are legal in all 50 states. That means the filing status rules now apply to all married couples, regardless of gender, nationwide.
When you file jointly, both spouses 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.
3. 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 spouses 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 tax.
4. Head of household
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.
5. Qualifying widow or widower with a dependent child
You can still file a joint return for the tax year in which your spouse died. After that, you might be eligible to file as a qualifying widow or widower.
This filing option is available for two years following the year of a spouse’s death and basically applies the filing data afforded married joint filers. The key here is that the surviving spouse cared for a dependent child who lived with the adult for the full tax year. During that time, the taxpayer must have paid for more than half the cost of keeping up the home.
Picking the right filing status isn’t always easy; some individuals find they actually qualify to file as more than one type of taxpayer. This could be the case for a divorced mother. Although technically she could file as a single taxpayer, it would be a smarter tax move to file as a head of household because she is taking care of dependent children. Head of household would give her a tax rate lower than the single filer’s rate, plus she’d get a bigger standard deduction.
So, take the time to examine your personal situation and how it fits into the various filing status choices. The IRS Publication 501 provides more details on each status’ requirements, as well as specific exceptions, examples and worksheets to help you make the appropriate filing choice.
And always keep in mind that the IRS lets you file under the applicable status that offers you the best tax advantage. The tax savings you might get by selecting the correct status could make any extra tax-filing trouble worthwhile.
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