April 15 is a day every taxpayer dreads. Not only do you have to do your taxes, but you have to make sure that you choose the right filing status to maximize your return or minimize your tax bill. To make sure you make the right decision, read the article below for important information on the different filing statuses that are available to you.
Marital Status Matters
Marital status is the most important factor when it comes to choosing a filing status. For married taxpayers, the decision is between filing jointly or separately. The IRS recommends filing jointly because it usually results in a lower overall tax bill. When filing jointly, you and your spouse report all income and deductions on a single tax return. Joint filing has a higher standard deduction, and you can make use of more extensive tax brackets. However, one downside to joint filing is that both spouses are responsible for any significant debts or tax liabilities incurred during the tax year. This means that if a spouse fails to pay taxes, the other spouse becomes liable for the debt.
On the other hand, married taxpayers can also file separately. This allows each spouse to report their income and deductions on separate tax returns. Separate filing can lead to a lower tax bill in some cases, but it usually involves more limitations on deductions and tax credits. Also, it can be complicated since each spouse will have to calculate their tax obligations separately. Before making a decision, you should consider whether the separate filing can be beneficial to you and outweigh the disadvantages.
Head of Household Options
If you are unmarried with dependents, you may be eligible to file as the head of the household. This status generally offers more favorable tax brackets than the single or the married filing separately status and often allows for more deductions and credits. To qualify for this status, you must have paid more than half the cost of maintaining a home for yourself and a qualifying dependent. Your dependent must either be your child, stepchild, foster child, or sibling, or a parent who lived in the same home with you for more than half of the year. If you have more than one qualifying dependent, you can still claim head of household status.
Single Filing Status
If you are unmarried and do not have any dependents, you will file as a single taxpayer. Typically, the tax brackets for single individuals are narrower than the head of household, and fewer deductions and credits are available. However, there are still some deductions and credits available to single taxpayers. For instance, single taxpayers can claim the standard deduction that reduces their taxable income. Additionally, single taxpayers are eligible for personal exemptions, which reduce their taxable income depending on the number of exemptions they claim. Personal exemptions vary each year, so you will need to check what the current exemption amount is.
Qualifying Widow(er)s Filing Status
Widowed taxpayers who have not remarried within the tax year can use the filing status of Qualifying Widow(er)s. This status provides the same tax brackets and standard deductions as married filing jointly for two years after the year of the spouse’s death in most cases. To qualify for this status, you must have a dependent child or stepchild who lived with you for more than half of the year.
Pitfalls to Avoid
When choosing the right filing status, you should consider all options available to you. Some individuals or married couples might think they qualify for head of household status or are mistakenly married by the end of the year. Without reviewing all of the options, taxpayers can leave money on the table, overpaying their taxes. You must research your options and choose the filing status that works best for your circumstances.
Get Professional Help
Choosing the right filing status can be a daunting task. If you’re unsure, it’s best to consult with a tax professional. The tax professional can analyze your situation, navigate the rules, and make sure you don’t miss out on any tax-saving opportunities. Using a tax professional can help you save time, money and ensure that you have correctly filed your taxes according to the legal requirements.
Watch Out for Tax Renegotiations
Your filing status can have some significant effects on your taxes for the year. However, you may find yourself in a situation where a renegotiation is necessary. Renegotiations often occur because of changes in the rules or because you made an amendment to your tax return. It is best to get professional help in such situations to avoid penalties and fines. The tax professional can help you navigate the renegotiation process, guide you on the documentation required, help you complete the necessary forms, and ensure that you stay on the right side of the law.
Make Changes to Your Withholding
Your withholding matters just as much as your filing status. If you find out that you owe the IRS significant money or you’re getting a tremendous refund at tax time, it might be time to revisit your withholding on your Form W-4. The form will help you adjust and ensure that you are paying the right amount to the government during the year. With proper withholding, you can avoid any big surprises at tax time.
