Selecting the appropriate filing status can dramatically impact how much taxes you owe and what standard deduction and credits are eligible to you. It also determines whether a tax return needs to be filed, so making the right choice can save money and lessen stress come tax time. There are five filing statuses for tax purposes:
- Married filing jointly (MFJ)
- Married Filing separately (MFS)
- Head of household
- Qualifying widow/widower with dependent children (QW/WW).
Taxpayers may claim more than one status; often, they will choose the option that results in the lowest tax liability. Your filing status depends primarily on your relationship to your spouse (if married), whether or not you have dependents, and your annual earnings. There may be exceptions; for instance, a divorced mother caring for her children might qualify to file as head of household and gain lower tax rates and larger standard deductions than single filers.
Remember to update your filing status each year as the IRS considers your marital status on December 31 for that specific tax year – for instance, if you remain married on that day but end up getting divorced before December, they consider your status legally separated throughout that year.
How to Determine Your Filing Status?
To determine your ideal filing status, the IRS offers an online tool called ” What is my filing status?” that asks several questions about your circumstances and suggests one that best meets your needs. Furthermore, this tool also explains all rates and brackets applicable for every filing status available to you.
Consulting a tax expert is invaluable if you need assistance selecting the appropriate filing status. Tax specialists will help determine which filing status best fits your situation, calculate your expected annual tax liability, and make necessary changes to withholdings and payroll deductions.
Finding the appropriate filing status can make all of the difference when it comes to reducing your tax bill, so take time to research your options and select wisely. With just a little effort, you can ensure you use an optimal filing status to pay as few taxes as possible.
Single Filers: Unmarried people who do not meet the requirements for another filing status are given the single filer status. If you lived apart from your spouse for the final six months of the tax year and paid more than half the expense of maintaining a residence for yourself and a qualifying dependant or child, the IRS may treat you as single, even if you are still married.
Married Filing Jointly is the default filing status for married couples, as this combines your income and deductions, potentially lowering your tax burden overall. However, filing jointly may have its drawbacks; for instance, if both incomes differ substantially. It may be more appropriate to file separately instead.
Married Filing Separately (MFS) is another filing status available to couples. MFS requires each partner to file separate income tax returns and claim individual deductions and credits, making this option suitable for couples with disparate incomes or who cannot agree on how expenses should be divided. MFS may also be useful if going through a divorce agreement governed by state law.
Qualifying Widow(er) with Dependent Child filing status is available for two years after the death of your spouse and provides similar benefits to Married Filing Jointly filing status, such as higher standard deduction amounts and thresholds for credits and deductions. In order to use this filing status, however, you must be either widowed or widowed and have at least one dependent child living in your care.
Head of Household filing status is available to individuals or couples living with at least one qualifying child and can provide significant tax savings, especially those with lower incomes. Unfortunately, its use also comes with limitations to child tax credits and reduced standard deduction amounts – two potential drawbacks to consider before selecting it as your filing status of choice.