If you’re unmarried and childless, your tax filing status probably seems like a nonissue. In the eyes of the IRS, you’re single.
But what if you get married? Or what if you get divorced? What if you become a single parent? How do you know what your status is, then?
And more importantly … why does it matter?
You can have one of five filing statuses.
In the eyes of the IRS, you can be:
- Married filing jointly
- Married filing separately
- Head of household (an unmarried person with a dependent)
- Qualifying widower with dependent child
Your filing status for the entire year is determined on December 31. If you’re married, divorced, or widowed on the last day of the year, that will be your filing status for the 364 previous days.
Your filing status directly impacts how much you’ll pay in taxes.
The IRS doesn’t ask for your filing status out of sheer curiosity. Along with affecting your filing requirements and the total amount of tax you pay overall, the status you declare will determine two things in particular:
Your deductions. Deductions are costs which you can subtract from your taxes, reducing the total amount of your assets subject to tax. While people with more complicated tax situations might choose to itemize their deductions (list them all and calculate individual deductions for each), many people claim the “standard deduction,” which is a set deduction determined by — you guessed it — your filing status.
Your tax bracket. Your tax bracket determines your tax rate, based on your income. Generally, the more you make, the more you pay, but it varies depending on your filing status. Tax Act provides a handy chart of the brackets, along with an easy tool to determine your own.
People with multiple statuses can choose the most advantageous.
If, on the last day of the year, more than one status applies to you, the IRS instructs you to choose the status that “gives you the lowest tax obligation.”
Certified public accountant Manuel Pravia of Miami-based firm Morrison, Brown, Argiz, & Farra explains that generally, for unmarried people with similar taxable income, qualifying widower with a dependent child — if your situation applies — costs less than head of household, which costs less than single. “So an unmarried person with a dependent would be better off picking head of household instead of single,” he explains. “If that dependent was a child and they were widowed within the past two years, they could pick any of the three, with qualified widower being the best.”
For married couples, Pravia says, things aren’t as clear cut: “The only way to identify whether joint or separate is the best filing status is to run through the calculation.” In fact, he alludes to the “marriage penalty,” which is the pattern of dual-income earners marrying and paying the price of being pushed into a higher bracket. If there’s only one income earner, though, “the couple filing jointly would pay less than the income earner filing separate.”
Of course, a financial professional such as an accountant or financial planner would be best able to estimate the effect your filing status will have on your taxes, but there’s another resource at your disposal: a simple tool at IRS.gov can help figure out your filing status for you.
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