Posted by Dennis Jao

How to Choose the Right Filing Status?

How to Choose the Right Filing Status?

There are five types of tax filing status: head of household, married filing separately, married filing jointly, qualified widow, and single filing. The status of your tax return can have a significant effect on the tax bill and the forms you need to fill out.

Find out how the status of your order can affect the tax deductions and credits you can claim, so you can select the correct one when you file your taxes.


Tax Filing Status Options

  • Head of Household (HOH): Singles who pay at least half of the cost of housing and support for others.

  • Married filing jointly: Most married couples.

  • Married filing separately: Married people with high incomes, people who believe their spouse may be hiding income or people whose spouses' have tax problems.

  • Qualified widow or widower: People who have recently lost a spouse and have a child at home.

  • Single: Singles who do not qualify for another filing status.


Head of Household (HOH)

This is usually, singles pay more than half the cost of maintaining a home throughout the year and provide most or the entire cost of livelihood to at least one other person for more than half of the year.

 

How It Works:

  • It is not arbitrary: You cannot use this filing status for tax purposes if you are in charge of the family or earns the most money. In the IRS eyes, this recorded statement is only for singles who need to support others.


  • There are rules for not being married: The IRS considers you to be single if you are not legally married. But you can also be considered single for this purpose if your spouse has not lived with you for the last 6 months of the fiscal year, and you paid more than half the cost of housekeeping. The cost of maintaining a home includes food, property taxes, mortgage or rental interest, utilities, property insurance, repairs and maintenance, and other household expenses.


  • There are rules regarding children: Speaking of children, to use this filing status, a "qualified person" must also be involved. Usually, this could be a child under 19 or 24 if the child is a full-time student and has lived at home for more than half of the year. It can also be your mom or dad, in which case your mom or dad doesn't have to live with you. In some situations, siblings and in-laws also count if you provide at least half of their support.

 

What you stand to benefit from this Filing Status

This filing status offers higher tax deductions and more favorable tax intervals than when you file single. The standard deduction for single status is $ 12,200 in 2019, but it is $ 18,350 for the HOH. And the taxable income of $ 50,000 will put you in the 22% range if you're the sole taxpayer, but if you declare yourself as an HOH, you will be in the 12% range.


Married, Filing Jointly

This is a filing status for most couples.


How It Works:

  • File Together: File the combined earnings and withhold the combined deductions and allowed credits on the same forms. You can file a joint return even if either of you has no income or deductions.

  • There are divorce rules: If you were legally divorced on the last day of the year, the IRS considers you single throughout the year. This means that it is impossible to submit a joint declaration in that year. However, if your spouse died during the tax year, the IRS considers you to be married throughout the year. You can file a joint return that year, even if you don't have children at home.

  • You are Both Responsible: Remember that when you file a joint return, the IRS holds you responsible for any taxes, interest, or fines. This means you could have problems if your spouse flubs the math or doesn't send the check.


What you stand to benefit from this Filing Status

It is probably a lower tax bill than when you file separately; your standard deduction, if you don't specify, may be higher, and you can accept deductions and credits that are generally not available if you file separately.


Married, Filing Separately

This filing status is usually for high-income people who are married, people who believe their spouse may be hiding income, or people whose spouses have tax problems. For example, if you are considering a divorce or are in the process of getting divorced and you don't trust your partner to be honest about their income, this option might be for you. If you've recently married someone with tax issues, it's worth considering this filing status.


How it works:

  • Separate filing is not the same as filing single: Only single people can use filing status for singles income tax purposes. Your tax brackets are different in some spots than if you are married and filing separately.

  • Combination of Things To Note: People who file separately generally pay more than they would pay if they filed a joint return. Here are a few reasons: Interest on student loans cannot be deducted. No credit can be claimed for the expenses of children and dependents. Also, the amount you can exclude from income if your employer has an addictions assistance program is half of what it would be if you filed a joint return. It is not possible to obtain an income tax credit. 

In most cases, it is impossible to accept exclusions or credits for adoption expenses. American Opportunity or Lifetime Learning credits cannot be received. You can only benefit from half of the standard deduction, the child tax credit, or the deduction of your pension savings contribution. Only $ 1,500 of holding losses can be deducted instead of $ 3,000. If your spouse specifies it, you must itemize too, even if the standard deduction is higher. You will also need to decide which spouse will receive each deduction, which can be difficult.


What you stand to benefit from this Filing Status

Usually, it's just a heavier tax burden, but there are possible benefits.

If you have an income-based student loan repayment plan that excludes adjusted gross income, filing a separate return can lower your monthly bill if payments are based solely on your income and not your income spouse. If you live in a community-owned state, whatever couples earn usually belongs to both spouses equally, negating most of these advantages.


Qualified Widow or Widower

This filing status is for those who have recently lost a spouse and have a child at home.


How It Works:

  • Children are the key: If your children were already on their own when your spouse died, this status probably wouldn't work for you, as you need to have a qualified child who lives with you. Also, you must pay more than half of the cost of maintaining the house during the fiscal year.

  • You have time: If your spouse died during the fiscal year and you may have used the married filing jointly status before the death, you can file jointly in the year in which your spouse died. You can then use a qualified widow or widower status for the next two years if you have a dependent child. For example, if your spouse died in 2020 and you have not remarried, you can file jointly this year (2020) and then use the qualified widow or widower filing status in 2021 and 2022.


What you stand to benefit from this Filing Status

An eligible widow or widower filing status allows you to apply as if you were married and filing jointly. This gives you a much higher standard deduction and better tax status than filing an individual claim.


Singles

This filing status is for singles who do not qualify for another filing status.


How it Works:

• There are rules for being Single: If you are legally divorced before the last day of the year, the IRS considers you single throughout the year. If your marriage is called off, the IRS will consider you to be single, even if you have filed a return.


• Don't be Duplicitous: The IRS may require that you use the "married filing separately" or "married filing jointly" tax filing status if you are divorced so that you can file single and then remarry your ex in the tax year. Translation: don't divorce every year for tax reasons and remarry the next day; The IRS knows this trick.


What you stand to benefit from this Filing Status

It can lower your taxes if you earn a lot of money. This is because, in the highest tax brackets, the income levels that determine the tax brackets of married people who deposit joint shares are less than double the income levels that determine the tax brackets of singles. This phenomenon is called "marriage penalty" and means that couples find themselves in the tax brackets faster than singles.



Dennis Jao
Contact This Member