Determining the correct filing status for your federal income tax return is important for a number of reasons. Filing status has an impact on tax rates, standard/itemized deductions, and many credits. Here are some notes on each status to help you determine which is appropriate for your situation.
Married Filing Jointly:
To elect this status you must be married as of the last day of the year. So all those last minute elopers out there this means you. Keep in mind that for your federal tax return the laws that govern are federal, not state. So even if you can file married at the state level under the same-sex laws in your state, you cannot elect this status at the federal level.
Generally, married filing jointly results in a favorable tax scenario compared to filing separately. One important thing to note, taxpayers who opt for married filing jointly are jointly liable for any tax liability that results from their filing jointly.
Married Filing Separately:
For those married couples opting not to file jointly the alternative status is married filing separately. As noted above typically this status does not result in tax savings; however, there are some reasons for choosing this status.
One of the more frequent reasons is excess medical expenses related to a spouse with minimal income. Since the medical expense deduction is tied to adjusted gross income, you may find that you can deduct the expenses if filing separately. Keep in mind that the taxes for the other spouse will most likely increase so you would want to weigh the cost benefit to see which nets the lowest tax liability.
When a couple separates, before actually divorcing, married filing separately is often the preferred status since it establishes individual tax liabilities that cannot attach to the other. It also allows you to file without concern for the other spouse.
No matter the reason for opting to file separately keep in mind that there are also some credits that are unavailable to those using the married filing separately status, such as the earned income tax credit and the child dependent care credit.
Head of Household:
In order to be considered head of household, your must be unmarried, considered unmarried, or a surviving spouse as of the end of the year. You may be considered unmarried if you are legally separated from your spouse under a decree of divorce or separate maintenance at the end of the year, or have lived apart from your spouse for at least six months of the prior year.
You must also have provided more than half the cost of keeping up a home for the year, and have child or other individual living with you who you may claim as a dependent on your tax return. There are special rules of you support your parents who do not live with you, so you may qualify under those circumstances.
This status results in lower tax rates and a higher standard deduction as compared to filing single. So if you meet the criteria the head of household status is the best option.
Surviving Spouse:
Filing with the surviving spouse status entitles you to the same tax rate as married filing jointly for two years after the death of your spouse assuming you have a dependent child at the time of the filing.
Single:
If you do not qualify for any of the above filing statuses, you should file with the single status.
The IRS offers an online assessment that may help you determine your filing status, click here
Filing your return with the proper filing status can save you money. However, your particular set of circumstances can make determining this status difficult. Consulting with your CPA will help you determine your best filing status for optimal results.