The State’s financial columnists occasionally answer questions from readers. This week’s question is: “What filing status do I use on my tax return?”
Without more detail, that is a hard question so let’s discuss the general options.
Single people have two tax filing status options: single and head of household.
Normally, unmarried people select the single filing status only when they do not qualify for the head of household filing status. The head of household filing status is preferred to the single status because it has a higher standard deduction, wider tax brackets and results in a lower tax liability. Eligibility for this status requires the taxpayer to meet certain criteria:
First, the taxpayer must be unmarried or considered unmarried on Dec. 31 of the tax filing year. To be clear, unmarried individuals have either never married, or are currently legally divorced. Those who are legally married, yet considered unmarried, can also choose this status; however, they must satisfy additional tests which can be found in IRS Publication 501.
Second, you must contribute more than half of the costs for maintaining a household for a child or other qualifying dependents.
Third, a qualifying person must have lived in his or her home for more than six months throughout the year. However, there are exceptions to this requirement. Parents may live in their own residences or in a retirement community and still meet the eligibility requirements as a qualifying person. Another example is a child in college. Parents can use the dependent student to qualify for this status, even if they live somewhere other than the parents’ residence.
If you are married, you will file as married filing jointly, married filing separately or as a qualifying widow(er).
Filing jointly. You may file jointly if, on the last day of the tax year, you are married and living together as husband and wife; married and living apart, but not legally separated under a divorce decree or separate maintenance agreement; or separated under a decree of divorce that is not finalized. You are also considered married for the entire tax year for filing status purposes if your spouse died during the tax year.
When filing jointly, you and your spouse combine your income, exemptions, deductions and credits. Filing jointly generally offers the most tax savings for married couples. But it is not always the most advantageous.
If your spouse owes certain debts, the IRS may divert any refund due on your joint tax return to the appropriate agency. To get your share of the refund, you’ll have to file an injured spouse claim and take the appropriate steps. You can avoid the hassle by filing a separate return.
Filing separately. You and your spouse can choose to file separately if you’re married as of the last day of the tax year. Here, you’d report only your own income and claim only your own deductions and credits. Filing separately may be wise if you want to be responsible only for your own tax. This usually leads to higher taxes but there are occasions where you should consider it. There are eccentricities that go along with married filing separately status so make sure you are aware them.
Qualifying widow(er). You may be able to select the qualifying widow(er) if your spouse died within the last 3 years and you are providing more than one-half of the support for a dependent child. This status allows you to use joint tax rates and offers the highest possible standard deduction – the one applicable to joint tax returns.
As you can see, choosing the correct filing status is not always easy. You may want to speak with a professional tax preparer or consult IRS Publication 17 for more information.
Life is a journey, plan for it.
Ashleigh Brooker, CFP, is the principal of A.J. Brooker Financial Associates in Columbia. Reach her at info@AJBrooker.com or (803) 724-1235. Neil A. Brown is a CPA and CFP with Burkett Financial Services in West Columbia. Reach him at www.uscneil.com or (803) 200-2272.