Preparing your tax return can be a complicated mix of math and tax-specific jargon that’s difficult to understand. One fundamental question that many tax payers struggle with is the difference between the various filing statuses—and the relative advantages of each. Some people qualify for more than one status, and it’s important to understand how to pick the best status for your circumstances.
Firstly, when considering the appropriate status from the previous tax year, you may be confused about what to do if your status changed over the course of the year—e.g., you got married or divorced. In the eyes of the IRS, the only thing that matters is your status on December 31. Below are the five options you have to choose from:
- Single: On December 31 of the tax year in question, were you divorced, legally separated or single? If any of these descriptors match your case, you can usually select this option. However, if you’re unmarried and have dependent children, head of household may be a better option for you.
- Married filing jointly: The majority of married couples tend choose this option because it’s usually easier. However, married couples can also choose:
- Married filing separately: While filing two tax returns instead of one may be more effort, it can be financially worthwhile, depending on the couple’s circumstances.
- Head of household: Single parents often qualify for this option. If you’re unmarried but pay more than 50 percent of the household expenses for a dependent—or other qualifying person—then you may qualify. Many special rules apply for this status, but qualified individuals can often save money by selecting this option.
- Qualifying widow(er) with dependent child: If you have a dependent child, and your spouse passed away no more than two tax years ago, you may qualify for this option. Generally the amount you owe under this status will be lower than if you file as single.
Bear in mind that each filing status has its own set of eligibility rules—so you want to be sure that you pick a status that you qualify for and that gives you the most benefits. If you qualify for more than one, it’s good practice to have your tax attorney figure your taxes both ways and figure out which one results in the least tax.