In the previous blog of Tax Season 2019 Ultimate Guide, we talked about the basics, tax plan changes & 2018 tax filing deadlines, and a little about the best tax software for you and your accounting and/or tax practice. We genuinely hope that our information may have helped you to deal with the taxes, and to add more to it, we came up today with our second blog – All About Your Filing Status.
You are all set to prepare for your tax return – from documentation to the right tax forms, you’ve double-checked everything already. But what about choosing the right filing status, huh? You should never underestimate the value of the IRS tax filing status as it can possibly affect your tax return status. Moreover, the right filing status reaps out the lowest possible income taxes and the biggest refund for you.
So, let’s dive deep into IRS tax filing status maths!
What Is a Filing Status?
Under the United States federal income tax law, filing status determines which tax return form an individual will use, and what tax rates and standard deduction amounts will apply to a specific tax return. It is considered an important factor in computing the taxable income of individuals. The determination is mostly affected by the marital status and family situation of an individual.
Why Filing Status Is Important?
Are you unable to figure out why everyone is so much into determining the filing status when all that matters at this instance of time is determining how much they owe in taxes? Well, it is quite tedious to understand IRS policies, but you’ve to work according to them, sooner or later. Believe it or not, your filing status can ruin the fortune you have or going to have if not chosen carefully. The importance of determining the right filing status lies into the understanding of all the tax-essentials, including filing requirements, tax rates, standard deduction, tax deductions and credits that will affect due to one wrong choice.
The Just-married Trouble!
Undoubtedly, your marital status matters a lot when you’re about to file a tax return. Even if you’re married on the last day of the year, you are classified under ‘married taxpayers’ and need to file tax as a ‘married person’ for that year.
Still confused? Just remember this general rule: “Your marital status on the last day of the Tax Year (December 31) is your marital status for the entire Tax Year.”
Five Tax Return Filing Statuses
The IRS has recognized five different tax return filing status types including Single, Head of Household, Married Filing Jointly, Married Filing Separately, and Qualifying Widow/Widower With Dependent Child Filing Status. It is articulated by the United States federal government that a taxpayer may be able to claim more than one filing status. However, taxpayers should review each status carefully as tax benefits may differ, depending on their specific situation. Normally, the taxpayer will choose the filing status that results in the lowest tax. Let’s understand each filing status one-by-one and analyze which suits best with your case.
1. Single Filing Status
Single, the most basic filing status, can be used if you are not married until the last day of the tax year and you do not qualify for any other filing status. However, Single taxpayers who pay more than half of the household expenses or, claim a dependent may be eligible for the Head of Household filing status.
2. Head of Household Filing Status
Head of Household filing status considered to be the most advantageous out of all and comes with certain rules. Taxpayers who qualify all the rules will get a higher standard deduction and wider tax brackets compared to the single filing status. Hence, filing as head of household depends on three complicated criteria, which are:
- A taxpayer must be unmarried or “considered unmarried” on the last day of the year.
- A taxpayer must have paid more than 50% of the costs of keeping up your home for the year.
- The last and the most complicated rule, a qualifying individual must live in your home for more than half the year.
You might qualify for Head of Household even when you are married (only if you’re lucky enough) if you fulfill these conditions: lived apart from your spouse for the last half of the year, and maintaining a home for a dependent child.
3. Married Filing Jointly
Being married doesn’t mean that you have to file joint income tax returns. It’s just that IRS believes: you’ll get more tax relief if you and your spouse decide to file it jointly. Including to that, you may also have a higher standard deduction and qualify for more benefits in comparison to other filing statuses. There are no such hard rules to consider if you wish to file a joint return with your spouse. All you need to take care of:
- Both you and your spouse must agree to file a joint tax return and sign it.
- You should be legally married on the last day of the tax year even if you filed for divorce during the year.
4. Married Filing Separately
There’s no doubt that the “married filing separately” status provides fewer tax benefits, but again it totally depends on your personal considerations. If you look forward to having separate tax liabilities, then MFS is a definite option and need not be overlooked. Some married couples find it worthy to file separately for the sake of their unique financial situation. However, there must be some other valid reasons as well. Let’s have a look at them too.
- They suspect that filing returns jointly might not be accurate.
- They find it better to call: One spouse owes taxes, and the other would get a refund.
- They both don’t want to participate instead only one wants to file taxes this year.
- They just want to keep their finances as separate as possible.
5. Qualifying Widow/Widower With Dependent Child Filing Status
Taxpayers who lost their spouse within the year can either file jointly or separately as a married person specifically for that year. Those who are still unmarried and have a dependent may file as a Qualifying Widow or Widower for a total of two years after the initial year of death. This particular filing status offers you the same standard deduction and tax rates as benefits under Married Filing Jointly filing status.
So, What’s Next?
No matter what your filing status, Sagenext’s robust electronic filing system powered by cloud technology makes it easier to prepare and file a tax return. Our smart Tax software hosting solutions include Drake Cloud, Lacerte Cloud and ProSeries Cloud hosting that allows professionals to accurately manage forms, update financial data, and process tax returns without overspending. You no longer need to worry about taxation complexities, our hosted accounting, and tax solutions are here to do all the math for you!