On the surface, it may seem like the easiest part of your income tax form to fill out, aside from your name and address. At the top of the 1040 tax form, the instructions read: Filing status. Check only one box.
The choices are:
- Married filing jointly.
- Married filing separately.
- Head of household.
- Qualifying widow(er).
Sounds easy, right? But the more you think about it, you may find yourself stumped. After all, if you’re married, you can file jointly or separately. Which is better? And who counts as “head of household,” a filing status that may sound like a throwback to the 1950s?
While this decision may not seem like a big deal, your tax filing status is important because it determines your tax bracket and ultimately the amount of tax you pay. Your tax filing status also determines your standard deduction as well as whether you qualify for certain tax credits. Here’s what to know about each of the five filing statuses.
Who qualifies: Single people without dependents. So if you’re divorced with kids, but you refer to yourself as single to your family and friends, keep in mind that “single” is not your tax filing status.
What are the benefits of “single” as a tax filing status? If you earn a lot, you could owe less taxes because you are single. When you get into the highest tax brackets, in many states you’ll wind up in a higher tax bracket as a married couple faster than as a single taxpayer.
You’ll often hear people call this situation the “marriage tax penalty.” Still, married taxpayers get plenty of financial benefits, such as often having a two-paycheck household.
Married Filing Jointly
Who qualifies: Married couples.
Usually it’s smarter to file jointly, according to Jeffrey Wood, a certified public accountant and partner at Lift Financial, a wealth management firm in South Jordan, Utah.
“There are certain tax deductions that may phase out or be lost when a couple files separately,” Wood says. “Some common and often-used deductions such as the earned income credit, the American opportunity credit, the student loan interest deduction and the lifetime learning credit are not available to married individuals who file separately. In addition, tax rates are typically higher for individuals filing as single or married filing separately than for those who file jointly.”
Another thing to consider: It’s typically easier and cheaper to file jointly, rather than pay or spend the time preparing two different tax forms…Read more>>