Filing your taxes is already stressful enough without having to worry about what your relationship status is in the eyes of the IRS. However, for many Americans, this is exactly the problem they face come tax time. Let's get all the confusion cleared up once and for all.
You will qualify for one of five filing statuses:
Married Filing Jointly
Married Filing Separately
Head of Household
How Do I know Which Status to Choose?
Filing status is based on a number of factors. Let's explore each option separately.
This filing status is reserved for those who were unmarried at the end of the tax year. Even if you have a girlfriend or boyfriend, you are still considered to be single for tax purposes. Single taxpayers with dependents may qualify for the more beneficial Head of Household filing status (see below).
MARRIED FILING JOINTLY
If you were married on the last day of the tax year (and that includes those who get hitched on New Year's Eve), you may file a tax return with your spouse. If your spouse passed away during the tax year, you can still file a joint return for that year (see Qualifying Widow(er) for additional details).
MARRIED FILING SEPARATELY
Married couples have the option to each file their own return if they choose to do so. Although for most couples filing a joint return is more beneficial, there may be cases where filing separate returns is more beneficial. Some couples also simply prefer to keep their finances separate. If you think this situation might apply to you, I strongly recommend talking to an accountant versed in married filing joint vs. married filing separate analyses.
HEAD OF HOUSEHOLD
This filing status is reserved for single taxpayers (again, single in the eyes of the IRS) pay the majority of the expenses (i.e., 50% + $0.01) for a qualifying person. It is important to note that a qualifying person is not necessarily the child of the taxpayer.
This filing status allows taxpayers with dependent children to retain the married filing joint filing status for two years following the death of their spouse.
For example, if your spouse passed away during 2016, you would be able to utilize the married filing joint filing status for the 2017 and 2018 tax years. Taxpayers without dependent children would be limited to using this filing status for 2016.
While just a checkbox, filing status plays a crucial role in determining other aspects of your tax profile such as:
• How much income you need to make before you are required to file a return.
• The amount of the standard deduction
• Eligibility for various credits and deductions
• Calculation of your tax liability
It is important that you know the rules as this can substantially affect your bottom line. Now that you are equipped with the knowledge of selecting the appropriate status for your tax return, you can go back to digging up all those receipts you meant to organize.