What's your filing status? You must inform the IRS of your filing status when filing your annual taxes. There are five different filing statuses, each conveying specific details about your tax situation. It's your responsibility to choose the most beneficial status for your circumstances, aiming to minimize potential tax liabilities and avoid overpayment.
The Importance of Your Filing Status
Your tax filing status tells the IRS how to apply taxes to your income. Your tax bracket and the amount you owe depend on factors such as your marital status and the number of dependents you have. Your occupation and other factors also play a role in what your tax obligations are. It is critical to select the correct tax status for several reasons. First, you must provide actual and honest information or face penalties and fraud charges. Second, the proper tax status can help reduce the amount of taxes you have to pay.
Types of Filing Statuses
The following are the five types of filing status:
- Single Filer: A person who is unmarried, divorced, legally separated, or in a registered domestic partnership according to state laws. Single filers have lower income limits than most others.
- Married Person Filing Jointly or Surviving Spouse: People who are married at the end of the applicable tax year and file a single return together. In this case, you can record your income, exemptions, and deductions on a single return. Joint tax returns often offer a bigger tax refund because they lower your tax obligations.
- Married Filing Separately: Those who are married but wish to file their taxes separately.
- Head of Household: A single or unmarried taxpayer paying 50% or more of the costs of supporting others. This person lives with others considered qualifying family members they support.
- Qualifying Widower with Dependent Child: In the year that a spouse dies, the surviving spouse may use this tax filing status if they are a qualifying surviving spouse. They can claim the standard deduction for a married couple filing jointly.
Factors to Consider When Choosing Your Filing Status
To select the most suitable tax filing status, consider the following factors:
- Identify if you are married.
- Your marital status on the last day of the tax year dictates your status for that entire year.
- If your spouse passed away during the year, you might need to adopt a specific tax status to avoid over-taxation.
- To qualify as a head of household, you must be single or unmarried with dependents, cover over half of the household expenses, and have a qualifying individual residing with you.
- If married, weigh the pros and cons of filing separately versus jointly.
- Filing separately can reduce the collection risk on both spouses and offer certain legal protections.
Your filing decision should reflect your financial circumstances and family structure. Consulting with a tax expert can guide you to the most appropriate choice.
Common Mistakes and How to Avoid Them
Remember that you don't just get to choose what works for you. You must factor in what the government believes is your situation's best tax filing status. If you are married, you'll want to determine if your state recognizes your marriage under state law.
Also note that if you get divorced during the year, the IRS still considers you unmarried for the entire year, even if your divorce ends on the last day of the year.
The Impact of Changes in Life Circumstances
Changing life circumstances impact your tax filing status. As noted, if your spouse dies during the tax year, you may benefit from filing a different tax status to minimize excessive financial taxation. For those who are divorced, that, too, can impact the tax filing options available to you.
Takeaways
As you prepare to file your taxes for the year, consider all types of tax filing statuses that you may qualify for, and then work closely with your tax professional to ensure you are filing appropriately so you do not overpay or underpay for taxes. Doing so could lead to financial losses for you, and it may lead to penalties if you do not pay your taxes as required.