#filing status

Why it’s important for taxpayers to know their filing status

When a taxpayer files their tax return, they need to know their filing status. What folks should remember is that a taxpayer’s status could change during the year. So, any time is a good a time for a taxpayer to learn about the different filing statuses and which one is best for them.

Knowing the correct filing status can help taxpayers determine several things about filing their tax return:

Taxpayers can compare eligibility and benefits of two education credits

There are two education credits that can help taxpayers with higher education costs: the American opportunity tax credit and the lifetime learning credit. There are several differences and some similarities between them. Taxpayers can claim both benefits on the same return, but not for the same student or same qualified expenses. Here’s a comparison of these two credits:

What is the maximum…

Tax planning includes determining filing status

Single or married? Kids or no kids? These are just a couple of questions that will help someone determine their tax filing status. Taxpayers usually only think about their filing status when filing their returns. However, this is something to think about all year, especially if it changes.

This tip is one in a seriesabout tax planning. These tips focus on steps taxpayers can take now to help…

Determining your filing status is the first step to filing! You need to do this before you can even decide if you are required to file.

There are five filing statuses (that is the plural, I checked):

Single

Married Filing Jointly

Married Filing Separately

Head of Household

Qualifying Widow(er) with Dependent Child

As you can see, your marital status is the general basis of your filing status. Your marital status for a tax year is determined on the last day of that year. That means, for example, if you got married during 2017, then you are considered married for the 2017 tax year. Or, if you got divorced during 2017, then you are considered single for the 2017 tax year.

The same concept applies to dependents: if you had a baby or adopted a child during 2017, then that child is your dependent for the 2017 tax year.

One, sort of, exception to this is that if your spouse died during 2017, then you can still file as married for the 2017 tax year.

So let’s talk about those statuses:

Single

This is the default filing status. If you aren’t married, don’t have kids, and you only support yourself (or even if someone else supports you) then your filing status is probably single. Basically, if you don’t qualify for the statuses listed below, then you should file as single.

Married

If you’re married, then you have to file either jointly or separately. Jointly meaning both of you file on one return, and separately meaning you each file a separate return.

I’m not sure where the rumor started that filing separately saves you money (I’ve heard many people think this), but honestly, for most couples, that just isn’t true. Most couples will benefit more from filing jointly. There are some instances where that won’t be the case, but you won’t know until you run the numbers.

And while we’re dispelling rumors, the idea that unmarried couples will pay lower taxes if they get married is not necessarily true. 

The truth is: your tax liability is going to depend on your circumstances, sources of income, and the amount of that income. There are plenty of situations where an unmarried couple might pay more taxes after getting married. You won’t know unless you run your own numbers under both statuses and see what looks better.

If you use a software or go to a professional, you will likely be told which status would be better for you to file. Otherwise, I would suggest just filing jointly if you don’t feel like running the numbers to compare.

Head of Household

This status provides for better rates than filing as single, but you have to meet several requirements to qualify.

You have to:

Be considered unmarried (if you don’t live with your spouse or your spouse is a nonresident alien then you might still qualify).

Pay for more than half of the expenses to maintain a household.

Have a qualifying dependent (doesn’t necessarily have to be a child).

This is a complicated status, and you should look into very closely if you think you qualify. The IRS monitors this status heavily because of its more favorable tax rates.

This TurboTax article explains the requirements very well:

https://turbotax.intuit.com/tax-tips/family/guide-to-filing-taxes-as-head-of-household/L4Nx6DYu9

Qualifying Widow(er) with Dependent Child

This status allows widows and widowers to utilize married rates for two years after the death of their spouse. There are still a number of qualifications and exceptions to this status, so you should also look carefully into this status if you think you may qualify.

This efile.com article explains the requirements very well:

https://www.efile.com/qualifying-widow-widower-tax-filing-status/

Federal income tax forms are due every year on April 15th. For this year, 2018, they aren’t due until April 17th because the 15th is a Sunday.

Filing a tax return just means submitting completed forms to the IRS (Internal Revenue Service). You can file a paper return (mail in physical forms) or you can e-file your return (submitting an electronic copy). Many people e-file nowadays because it can be a lot easier, cheaper, and more convenient. Many online services will e-file your federal and state return for free if you have a simple tax situation.

Taxes for each year are filed in the following year. For example, the current year is 2018, so the tax returns due in April 2018 are for the year 2017. So all of the information on this season’s tax return will need to be total amounts for the 2017 calendar year, even though we are currently in 2018. The term tax year denotes the year the income is received. 

Thus, all of the relevant information released by the IRS for this current filing period will say “for tax year 2017” or will have a big, bold 2017 printed somewhere on the page.

The actual preparation, calculation, and submission of your federal return can be very complicated. This is because the IRS has the task of creating all of the procedures, calculations, forms, etc. necessary to collect taxes from everyone who owes them.

Congress writes and passes tax laws. Then the IRS is there those laws into reality. The IRS is in charge of creating all of the procedures, calculations, forms, etc. necessary to calculate and collect taxes from everyone who owes them. That’s why there are hundreds of forms and charts out there. That’s why everyone ends up scratching their heads saying “does any of this even apply to me?”.

The tax system is one size fits all. So if you’re navigating your way through a complicated form and wondering why they want to know if your 1099 distribution was an RMD from an IRA because you don’t even know what any of that means and why are there so many abbrevations, just remember that these rules have to cover a lot of people with different sources and uses of income. This agency has to incorporate thousands of specific, obscure, and ever-changing laws into one giant formula. 

And that is why it’s complicated.

This is the beginning of a series of posts about this subject. Other posts will cover topics like: 

Do I Need to File?

The Federal Income Tax Formula

Filing Status

Withholdings

Exemptions, Deductions, and Credits

Tax Liability

Tax-Deferred Items

Itemized Deductions

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