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How to Choose the Right Tax Filing Status

How to Choose the Right Tax Filing Status

The status of your tax return can make a big difference in what you owe the IRS. There are five options, and the one you choose determines whether you can make certain tax deductions or exemptions that can lower your final bill.

In some cases, your status may also decide if you have to file at all. And sometimes, a filer may qualify for more than one. If so, you'll want to choose the one that offers you the lowest tax bill.

It is therefore essential to choose the right filing status.

The options are:

  • Single

  • Married Filing Jointly

  • Married Filing Separately 

  • Head of Household

  • Qualifying Widow(er) 



Single

This applies to single, unmarried, legally separated, and divorced taxpayers. You are considered single year-round if you are legally single on the last day of the year.


Married Filing Jointly

In this case, as in the case of single filers, you are considered married for the entire tax year, provided you got married on the last day of the tax year. Due to the 2015 United States Supreme Court ruling in the Obergefell case, same-sex marriage is legal in all 50 states. This means that the rules on filing status now apply to all couples, regardless of gender, across the country.

When filing a joint return, both spouses report all income on a Form 1040. Both taxpayers may be subject to any taxes (or subsequent penalties and interest). This would be the case even if only one of the spouses received all the income. Additionally, the joint filing option provides certain tax credits that are not available in other filing statuses.


Married Filing Separately

Here, couples separate their income, deductions, and exemptions and file two individual returns. This may be advisable in cases where, for example, one of the spouses has incurred high medical expenses. Since these costs must exceed a percentage of the claimant's income before they are deductible, using only the qualifying spouse's income when filing separately may make this deduction limit more feasible.

However, in most cases, couples find that they usually pay more combined taxes for separate fling than for joint filers. In some cases, the tax rate for at least one spouse turns out to be higher than it would be in the case of a joint application. In addition, when spouses file separate returns, they lose certain tax credits and deductions that they could have made had they filed joint returns.

Unless a separate tax return is required, the tax must be calculated on a common and separate tax return. This way, you can ensure that you are using the method that results in the lowest combined tax.


Head of Household

This law applies to taxpayers who, during the tax year, provided more than half of the cost of maintaining the home and a qualified person who has lived there for more than six months. Tax rates for qualified taxpayers are generally more favorable than married filing separately or single status. The head of household filers also receives a higher lump sum deduction than the single filer. In some cases, married people who do not live with their spouses may be eligible for this status.


Qualified widow(er) or widow(er) with a dependent child

You can file a joint return for the fiscal year in which the spouse died. After that, you may be able to file as a qualified widow or widower.

This filing option is open for two years after the year of the spouse's death and applies primarily to filing data provided to married joint filers. The thing to note here is that the surviving spouse took care of a dependent child who lived with the adult for the tax year. The taxpayer must have paid more than half of the housekeeping costs during this period.


Other factors to consider when choosing a filing status

Dates matter: Normally, you are filing taxes for last year, not this year, and the actual date to consider is December 31. If you're married, you have to file it as married, even if you were single 364 days a year. If you have your wedding on December 31, you are married on your tax return.

Likewise, if you are divorced on December 31, you are considered divorced for the whole year. You will not be able to file a joint return for that year.


Carefully choose your filing status: Once you file your taxes, you may be stuck with that filing status for that fiscal year. You won't be able to change to another status if you are married and file jointly and, for some reason, decide to change to another filing status.

On the other hand, if you file separate returns and realize you should have filed jointly, you can change your returns to a joint return within three years.


Understand the meaning of the word "dependent.": You need to understand how IRS defines dependent. In other words, it is an eligible child or an eligible relative of the taxpayer. Your spouse is not dependent. To apply for adult children, they must be under 24 at the end of the tax year and be unmarried.

While this is not a filing status, having someone else claim you as a dependent affects your filing status. You must be single to be legally claimed as dependent by a parent or other eligible relative. If you meet all the necessary criteria for a dependent, you may still have to file your tax return, depending on your income during the year, but you will not be able to claim the standard deduction.


Conclusion

Choosing the right filing status is not always easy; some people think they are eligible to file using more than one filing status. This could be the case of a divorced parent. Although technically you can file as an individual taxpayer, it would make more sense to file as a head of house because you are caring for dependent children. Head of household status will give you a tax rate lower than the single filing rate and a higher standard deduction.

So take the time to consider your situation and how it fits into your various filing options. And always have it in mind that the IRS allows you to file returns in the applicable state that offers the greatest tax benefit. The tax savings you can achieve by selecting the right status can make any additional tax filing worthwhile.


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