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The Truth About Paying Fewer Taxes: Figuring Out Your Filing Status

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Every taxpayer’s situation is unique. But the Internal Revenue Service gives us just five categories, or filing statuses, to choose from when we prepare our returns. S. Kay Bell tells you what they are and how to select the most tax-advantageous status.
This chapter is from the book

This chapter is from the book

Given such limited choices, you would think picking the appropriate one would be a snap. It can be. But some of us need to take a little more time to ensure that we select the appropriate, and most tax-advantageous, status.

Your filing status is based on your marital status on the last day of the tax year. But, as is often the case when it comes to taxes, it’s not that cut and dried. Some folks are able to file a couple of ways. Married couples can send in one 1040 or two. And the wrong choice could be quite costly.

Filing status, along with your income and age, helps determine whether you need to file a return at all. It’s also a factor in your ability to claim certain tax breaks and determines just how much of a standard deduction you can claim.

  • Filing status, along with your income and age, helps determine whether you need to file a return at all.

Single—Single filing status is available to unmarried individuals. This is taxpayers who have never been married, are divorced, or are legally separated under a divorce or separate maintenance decree.

Remember, the last day of the tax year is the determinant. If you were married from Jan. 1 through Dec. 30, but your divorce is final on Dec. 31, you are considered unmarried for the full year.

Married filing jointly—Similarly, if your wedding was Dec. 31, you are considered married for that tax year and are able to file jointly. But you don’t necessarily need a marriage certificate to qualify for this status. In addition to having a formal marriage certificate, the IRS also considers you married for tax purposes if, on the last day of the tax year, you are

  • Living together in a common law marriage recognized by the state in which you live or by the state where the common law marriage began
  • Married and living apart, but are not legally separated under your state’s law
  • Separated under an interlocutory—that is, not final—decree of divorce

In some cases, a marriage certificate is no good when it comes to filing jointly. Although same-sex marriages and civil unions are recognized by some states, federal law explicitly states that for IRS purposes, a marriage means only a legal union between a man and a woman as husband and wife.

If your spouse died before the end of the tax year and you did not remarry, you can still file a joint return for that year. Don’t be confused by the qualifying widow/widower status; you’ll find more on it in a few paragraphs.

Joint filing is the choice of most couples. Not only is it convenient for both you and your spouse, as well as the IRS, which then has to examine only one return for two people, you could lose some tax breaks if you file a separate return.

A joint return, however, does have some potential drawbacks.

When you and your spouse combine all your personal financial information on one form, you each are responsible for any tax that results, as well as for any possible tax penalty that might come from the combined filing. This shared tax liability applies even if only one spouse earned income.

Married filing separately—Because of potential tax troubles, some couples file separate returns. This is common when marriages are on the rocks or when one spouse suspects the other of using overly aggressive tax techniques.

But there are other, less sinister and potentially tax-cutting reasons to file two 1040s. For example, some tax breaks have limits that are easier for one, rather than two, taxpayers to meet.

Take medical deductions. To be claimed as an itemized deduction, medical expenditures must exceed 7.5 percent of a filer’s adjusted gross income. If a couple makes a combined $100,000, this means they must have eligible health-related costs of more than $7,500 to get any tax break. But if the medical costs were primarily for the wife and her income alone was $40,000, her expenses over $3,000 would be deductible.

The goal is to use the filing status that produces the lowest combined tax.

Head of household—This filing status is a great benefit for single people with dependents.

When you provide more than half the cost of keeping up a home for yourself and a qualifying person who lived with you for more than six months, head of household status will get you a larger standard deduction. Your tax rate also will likely be lower than the rates for single or married filing separately taxpayers. In some cases, married persons living apart might qualify for this status.

Qualifying widow/widower—After you have lost a spouse and no longer are able to file a joint return as discussed earlier, if you still have children at home, look into this filing status. It essentially gives you the basic filing advantages (for example, larger standard deduction) of married joint filers.

The qualifying widow or widower status can be used for two years following the year a spouse passes away as long as the surviving spouse cares for a dependent child. The child must live in your home for the full tax year, and you must pay for more than half the cost of keeping up that home.

When a surviving spouse no longer qualifies for this status, he or she would file as a head of household if the kids are still living at home or, with no dependents to claim, as a single taxpayer.

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