Choosing the right filing status for tax purposes is important because it has a direct bearing on the amount of tax you will pay. There are five main filing status categories which are single, married filing jointly, married filing separately, head of household and qualifying widower. You would think the category names would make it clear which filing status you should claim, but there are specific qualifications you must meet as defined by the IRS.
• You would choose single filing status if you are not married or you have not been married for the entire year. But of course, it is not really that simple in reality. If you are single and have children you would probably qualify for filing status head of household. If you are widowed because your spouse died then you need to read about the filing status called qualifying widower. Head of household and qualifying widower filing statuses usually would result in lower taxes.
• The filing status married filing jointly is exactly what it sounds like. You and your spouse file a joint tax return meaning you file one return and include both you and your spouse’s income and deductions on it. You can choose to file separately though this often leads to paying higher taxes. For most married people filing jointly leads to the lowest tax rates.
• The filing status married filing separately is often used by couples when one has a much higher income. It is also used when it is beneficial to report as married filing separate deductions because of disproportion deductions between the spouses. Sometimes the lower income spouse taxes paid can offset some of what the higher income spouse would have to pay. This filing status must be chosen when a spouse is claimed as a dependent on another person’s tax return or the spouse’s have different filing years for their tax returns. There are other situations where married filing separately should be selected.
• Head of household filing status is an often misunderstood category. The misunderstanding comes from the fact that a married spouse considers him or herself to be the head of household when paying most of the household expenses. But you have to be unmarried as of the last day of the year (see exceptions in next paragraph) and meet other tests in order to qualify as head of household. The other qualifying tests include maintaining a household for a dependent for over half the year and being able to prove you paid 50% or more of the household expenses.
Of course there are exceptions (this is the IRS after all!). You can also claim head of household even if you are married if you can claim a dependent child, maintained a home for the dependent child, paid over half of the household expenses and lived separate from your spouse for the period of July to December of the tax year.
• The qualifying widower filing status is reserved for those people whose spouse died during the tax year and you could have chosen married filing jointly otherwise. You must have also paid for more than 50% of the household expenses and maintained a home for a dependent child. You cannot have remarried since becoming a widow.
Determine the Right Filing Status and Only Pay What You Really Owe
Naturally there are plenty of stipulations not mentioned here which is why you need to use Turbo Tax online to determine the qualifying filing tax status that will net you the lowest taxes. Choosing the right filing status is important because the more income you report, the more taxes you will pay and especially if you are taxed at a higher tax rate.
