The number one, most important thing you must decide when you file your taxes is your filing status. There are five possible choices:
- married filing jointly
- married filing separately
- head of household, or
- widow(er) with dependent child.
Do you find yourself always checking the same box automatically? That may be okay, but some people actually have a choice between categories and don’t know it. For example, a single person whose parent moves in might qualify as a head of household—and for lower tax rates as a result. So it’s worth reexamining your assumptions. Why is your filing status so important? Well, for one thing, it determines the income levels for your tax brackets.
Married couples filing jointly and widows(ers) with dependent children have the lowest (best) tax brackets. The next best rates go to heads of households, then single people, and finally married people filing separately.
Your filing status is also crucial for calculating your standard deduction and personal exemptions. Once again, married couples filing jointly and widow(er)s with dependent children do best, followed by the people who are heads of household, single, and then married filing separately.
Filing as a Single Person
If you’re not married, have no relatives living with you, and are not supporting your parents, you must file as a single. If relatives live in your home or you support your parents, see if you can qualify for head of household status (or widow or widower status if your spouse died), so as to pay less tax.
You’re considered unmarried for the whole year if, on December 31, you are divorced or legally separated from your spouse under a final divorce decree or separate maintenance decree.
Married Filing Jointly
You can choose married filing jointly as your filing status if you are legally married and both you and your spouse agree to file a joint return. A joint return is a single return for a husband and wife that combines their incomes, exemptions, credits, and deductions. You can file a joint return even if one of you had no income or deductions.
You are considered married for tax purposes for the entire year if, by December 31:
- you are married and living together as husband and wife
- you are living together in a common law marriage recognized in the state where you live or in the state where the common law marriage began
- you are married and living apart, but not legally separated under a decree of divorce or separate maintenance, or
- you are separated under an interlocutory (not final) decree of divorce. (For purposes of filing a joint return, you are not yet considered divorced.)
For IRS purposes, a marriage is only a legal union between a man and woman as husband and wife. Same-sex marriages and domestic partnerships don’t count, although they may be recognized under some state laws.
Married Filing Separately
If you’re married, you always have the option to file your taxes separately. If one of you won’t agree to file a joint return, you’ll have to file separately, unless you qualify for head of household status. When you file a separate return, you report only your own income, exemptions, credits, and deductions. You can pay less tax by filing this way if both you and your spouse have similar or equal incomes--this is particularly true for high income taxpayers.
Head of Household
If you’re not married, but pay for the upkeep of a home where a relative lives or you support your parents, you may qualify for head of household status. Filing as head of household is better than filing as single because you get a larger standard deduction and the tax brackets are more favorable.
Head of household is the most difficult filing status to understand. However, the basic idea is that you qualify as a head of household if you pay more than half the cost of keeping up a home where you and at least one of your dependents lives.
You can file as head of household if:
- you are unmarried on December 31 of the tax year
- you paid more than half the cost of keeping a home for the year, and
- a dependent child or other dependent relative lived with you in the home for more than half the year (however, a dependent parent does not have to live with you).
You must have a home where a dependent lives over half the year (temporary absences for things like schooling, medical treatment, vacations, business, or military service are not counted). The home doesn’t have to be your main residence, but you must still spend a substantial amount of time there.
A dependent is a person for whom you can claim a dependency exemption--this can be a child or other relative you primarily support. See the article Who Qualifies as a Dependent for Tax Purposes?