Your tax filing status depends on your individual circumstances. Are you single or married? Do you have dependents like children? Determining the correct tax filing status is crucial because it influences the tax rates you will pay and the standard deduction you can take to reduce your taxable income.
Filing Statuses and Standard Deductions
The IRS offers five statuses to choose from, but you can only use one when completing your tax return. These statuses include:
- Single
- Married Filing Jointly
- Married Filing Separately
- Head of Household
- Qualifying Widow(er)
Selecting the correct status from the above list matters because it will determine the amount you owe in taxes.
Changing Tax Brackets
Your tax filing status places you in a different tax bracket that determines your marginal tax rate. For example, for single individuals earning $90,000 in 2023, the tax rate is 22%. For married couples earning $90,000, the tax rate is 24%.
So, yes, your tax filing status needs to have a significant impact on your tax liability. Depending on the status you qualify for, you can earn more before paying a higher percentage of tax on the last dollar, and you can deduct more from your total income so that you only pay tax on the remaining balance.
Single Tax Filing Status
The single status is used for individuals who were not married on the last day of the year. You either have never been married, are divorced, your spouse died more than two years ago and you are not remarried, or you are legally separated. You have no dependents, or at least none that qualify you for the head of household or qualifying widow(er) statuses.
Note: The single status is essentially a catchall for individuals who do not meet the criteria for any of the other four statuses.
When Should You File as Married?
The pivotal date for determining your tax filing status is December 31. All statuses depend on whether you are considered married or single on that specific date. You are considered married for tax purposes if you are legally married on the last day of the year and living with your spouse. However, you are also considered married if you are separated from your spouse by agreement rather than by court order.
Note: You are not considered married if you are separated by court order, but you are married if you live apart by agreement.
Married Filing Jointly Status
You can choose to file a joint tax return with your spouse if you are married. The joint return combines your income and deductions. Both you and your spouse must agree to file a joint return, and you both must sign it.
The married filing jointly status provides several tax benefits compared to filing separate tax returns for married couples. However, it also means that you and your spouse are “jointly and severally” responsible for the joint return. You are both liable for the accuracy of the return and for paying any tax due individually.
In other words, the IRS can collect the full amount from you personally if it turns out that you and your spouse owe $15,000 in taxes on your combined income, even if you earned only 10% of the money that produced those taxes.
Married Filing Separately Status
You and your spouse can also file separate tax returns if you are married, but married individuals who file separately receive fewer tax benefits and considerations compared to the IRS tax rules.
Couples who choose to file separately will not qualify for many tax benefits and credits, including the Earned Income Tax Credit or the American Opportunity Credit. The Child Tax Credit and Child and Dependent Care Credit are also negatively affected.
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This situation provides a way to determine tax liability separate from your spouse. Married couples may want to file separate returns for reasons such as:
- One spouse wants to file taxes, but the other does not.
- One spouse suspects that a joint return may not be accurate.
- One spouse does not want to be responsible for paying the full tax indicated on the joint return.
- One spouse owes taxes, while the other is entitled to a refund.
- The couple lives separately but is not yet divorced and wants to keep their financing as separate as possible.
However, you must cooperate and share tax information with your spouse if you file separately, and you will need to coordinate who can claim dependents as dependents if you have any. Couples who file separate returns both must either take the standard deduction or both must itemize their deductions – their returns must match in this respect.
Note: Filing a joint return can reduce federal taxes in many cases, but filing separately creates separate tax liabilities for each spouse, which can be beneficial in reducing tax risks.
Head of Household Filing Status
You may qualify for head of household filing status if you are single or considered unmarried on the last day of the tax year, and if you are caring for dependents such as your child who lives with you for more than six months.
Married individuals can be considered “unmarried” for qualifying for head of household status even if they have not been legally divorced or separated in certain cases. You can qualify if you and your spouse did not live together during the last six months of the tax year – even one day after June 30 – as long as you meet the other requirements.
Note: Temporary absences do not count, such as if your spouse is living elsewhere for practical reasons, because your spouse likely intends to return to your home at some point.
Single individuals who can claim dependents must pay more than half the cost of maintaining the household during the tax year to qualify as head of household, but the IRS provides some flexibility here. If your dependents are close relatives, such as parents, they do not have to live with you, although you must pay more than half the costs of maintaining their home and be able to claim them as dependents. Other dependents who are not children must live with you all year.
Qualifying Widow(er) with Dependent Child Filing Status
You can still file a joint return or separate as a married taxpayer for the tax year your spouse died, even if you do not have a dependent. You can then file as a qualifying widow(er) if you remain unmarried and have a dependent child after the first year of the death.
This status allows you to continue benefiting from the same standard deduction and the same tax rates available to married couples filing a joint return.
Source: https://www.thebalancemoney.com/your-filing-status-3193037
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