Your tax filing status has a major impact on what you’ll pay in taxes for the year. There are five official filing statuses, and the one you pick determines whether you can take certain tax deductions or exemptions that could lower your final tax bill.
Single – This applies to never-married, unmarried and divorced taxpayers. You are considered single for the whole year if you were legally single on the last day of the year.
Married filing jointly – You are considered married for the whole tax year as long as you were married on the last day of the tax year. Same-sex marriages are now recognized for federal purposes, including tax filing, even if their home state does not accept such marriages as legal. When you file jointly, both spouses report all their income on one Form 1040. Both filers may be held responsible for any tax (or subsequent penalty and interest) due.
Married filing separately – Here couples segregate their income, deductions and exemptions and file two individual returns. This might be advisable in cases where, for example, one spouse had large medical expenses. Because these costs must exceed a percentage of the filer’s income before they are deductible, using only the eligible spouse’s earnings by filing separately might make that deduction threshold more attainable.
Most people find that filing jointly is the best way to go, but there are instances when filing separately is more prudent.
Reasons to File Jointly
- More deductions and credits are available. Filing jointly gives you access to more credits, including the child and dependent care, earned income, and the elderly and disabled credits. You can also take advantage of deductions for college tuition and student loan interest. Generally, these are not available if you file separately. Consult the IRS website for a full list of available deductions and credits for married couples filing jointly.
- You can deduct IRA contributions or contribute to a Roth. As long as you meet income requirements for married filing jointly status, you can deduct traditional IRA contributions or contribute to a Roth. On the other hand, if you file separately, you may lose the ability to deduct or contribute because income requirements are much more strict.ü You may pay less in taxes. The taxes you’ll pay when filing jointly are usually lower than if you combine the taxes due on two separate returns.
- It’s easier if you itemize. If you itemize, filing jointly is often your best option. If you file separately and one spouse itemizes, then the other needs to also, even if the itemized deductions are less than the standard deduction.
- It’s more convenient. It’s faster to simply file one, unified return. Unless other reasons are very compelling, you will likely want to file jointly.
Reasons to File Separately
- You can deduct excessive unreimbursed medical expenses. Because you can only deduct medical expenses in excess of 7.5 percent of your adjusted gross income, filing separately can allow one spouse with heavy medical expenses to deduct more of them against their income only.
- You can protect yourself from an unethical spouse. If your significant other tends to be more “creative,” so to speak, with their return and deductions, you might want to file separately to protect your own interests in the event of a tax audit.
- Protect your refund against seizure for child support. If your spouse owes child support, filing separately will protect your tax return money from government seizure.
- Protect your refund against seizure for back taxes. If your spouse owes the IRS for back taxes, filing separately will protect your tax refund money from being applied to this debt.
- If you are legally separated. If this is the case, you are required to file separately by law.
- Avoid complications if you are getting divorced. If you are in the process or know you will be getting a divorce soon, filing separately is a good idea to avoid any tax complications after it’s finalized.
Head of household – This status applies to unmarried taxpayers who during the tax year provided more than half the cost of keeping up a home for the filer and a qualifying person who lived in the home for more than six months. Being financially responsible for a dependent — even a parent — could give you the option of filing Head of Household. Tax rates for qualified filers usually are more favorable than those in the single or married filing separately categories. Head of household filers also get a larger standard deduction amount than do single filers. In some cases, married persons who have not lived with their spouses may qualify for this status.
Qualifying widow or widower with a dependent child – You can still file a joint return for the tax year in which your spouse passed away. After that, you might be eligible to file as a qualifying widow or widower. This filing option is available for two years following the year of a spouse’s death and basically applies the filing data afforded married joint filers. The key here is that the surviving spouse cared for a dependent child who lived with the adult for the full tax year. During that time, the taxpayer must have paid for more than half the cost of keeping up the home.
Below is a flow chart from LearnVest that can help with your decision on which filing status to use.
So take the time to examine your personal situation and how it fits into the various filing status choices.
Always keep in mind that the IRS lets you file under the applicable status that offers you the best tax advantage. The tax savings you might get by selecting the correct status could make any extra trouble worthwhile.