Whether you choose to go through life with a partner or independently, picking the right filing status is very important. In some cases, multiple statuses may even apply simultaneously! Not to worry, our tax handlers are more than capable of making sense of it all, while helping you attain the highest payout!
Here’s a quick review of your options, and keep in mind your status on the last day of the year determines your status for that year!
Single (S)
- If you’ve divorced, legally separated, or never married in the first place: this is the option for you.
- If no other status fits your current lifestyle, you are required to file as single.
Married Filing Jointly (MFJ)
- This is for married couples filing a joint tax return together.
- Same-sex couples who have been legally married in jurisdictions which allow it have their marriage status respected, regardless of current residence.
- This is for married couples filing separate returns.
- For itemized deductions: if one person files, the other must also.
- This option makes each individual responsible for their own taxes, which may lead to a lower payment.
Head of Household (HOH)
- Even if you haven’t been married, paying for more than half the cost of home maintenance for you and another qualifying person means you may apply for this status.
- The qualifying person may be a parent who is dependent on you, and it is not required for them to reside with you.
- Even if they don’t receive any income, a spouse may never be claimed as a dependent.
Qualifying Widow(er) with Dependent Child (QW)
- This applies if a spouse has passed away, you have a child dependent on you, and a few other conditions the tax handler can go over.
- This status may be used for up to two years after the passing away of your spouse if remarriage hasn’t occurred.
- If your spouse has passed away during the tax year, a joint return may be filed under the Married Filing Jointly status.
Children
On top of being the brightest source of joy in this world, they also provide large tax breaks!
- Children born on December 31 are presumed to have lived with you the entire year.
- Qualifying children under the age of 17 may be eligible for tax credits of up to $1,000, among other additional credits.
- Expenses for adopting children may result in additional tax credits as well!
- A dependent’s exemption can be claimed for each qualifying child.
- Working children are unable to claim exemption if they can be claimed as a dependent by their parents.
Home Buying or Selling
Buying a home is a dream come true for many people, but did you know it also comes with tax breaks?
- Mortgage interest and real estate taxes are both deductible.
- When you sell your home that you owned and lived in for two of the last five years, the profit on the sale up to $250,000 ($500,000 for married filing jointly) is not taxable.
- As long as you have lived in the home you owned for 2 of the last 5 years, the profit from selling at up to $250,000 (or $500,000 if filing jointly) is not taxable.
Education
School is best seen as an investment for an individual’s future, these tax breaks can help alleviate some of the financial burden.
- The American Opportunity credit exists to offer up to $2,500 for tuition and other school expenses. Each qualifying student has this option in the first 4 years of college education at qualified institutions. Even if no taxes are owed, up to 40% of the credit may be awarded.
- Another option is the Lifetime Learning Credit, which offers up to $2,000 for tuition and other school expenses paid for by a qualified individual at eligible college institutions. While the American Opportunity Credit only applies for students’ first 4 years of college, the Lifetime Learning Credit may apply for returning students and those seeking continuing education!
- Student loans are serious business. Luckily, taxpayers may deduct up to $2,500 of student loan interest as an income adjustment.
Jobs
Jobs are stressful enough without throwing tax concerns on top of things…not to worry; we can handle all the intricacies.
- If job expenses are paid out of your own pocket and not reimbursed by the current employer, filing them may qualify as a business expense.
- Moving to a new location for a job may be tough, but might also qualify you for a claim due to moving expense!
- If you were to change jobs, know that your pension is not lost! Fear not, for you have the option to roll the old amount into your new retirement fund, or into a traditional IRA.
Individual Retirement Arrangements (IRAs)
Your future is important. Planning ahead is not only beneficial to your personal life, but it may also help on your taxes.
- Any withdrawal from an IRA before the age of 59½ results in a 10% tax.
- $5,500 (or $6,500 if older than 50) a year may be contributed to a traditional IRA, with at least a portion of the contribution being deductible. This amount deposited grows tax-free until withdrawn, leading to deductible contributions and earnings being taxed. Early withdrawals may become taxable by an additional 10%.
- Same contribution rules apply to a Roth IRA, difference being that none of the contribution is deductible. The deposit grows tax-free and qualified amounts may be withdrawn tax-free. As with traditional IRAs, early withdrawals may become taxable by 10%.
Divorce
Life changes drastically after a separation. Taxes are no exception.
- As stated before, if a separation or divorce occurs by December 31, the IRS considers you to be unmarried for the entire year.
- Your filing status will be Single or Head of Household (if qualified) after a divorce or legal separation.
- The custodial parent, or the parent with whom a dependent child lives, does not lose the head of household filing status by allowing the non-custodial parent to claim the exemption for a dependent child.
- The IRS may delay tax processing if certain errors are met by way of conflicting information. Changing your W-4 to reflect your new filing status is very important after a divorce. Notifying the Social Security Administration of any name change is equally as important.
Retirement
This information will ensure you live out a peaceful retirement without any tax issues.
- Once distributed, pensions are usually taxable.
- For the year following reaching the young age of 70½, withdrawals from a traditional IRA must be made by April 1st.
- If you are age 65 or over, and are below certain income limits, you may be eligible for the nonrefundable credit for the elderly or the disabled.
- If you receive a pension and don’t have your taxes withheld, quarterly payments may need to be made using Form 1040-ES, Estimated Tax for Individuals.
Gifts and Inheritance
While gifts and inheritances may be nice, many things should be considered before accepting them.
- Donors retain basis for any property given as a gift.
- If property is inherited due to a death, it receives an updated basis to the fair market value (FMV) on the date of passing.
- IRAs, pensions, and certain other inheritances are taxable when distributed to the benefactor.
Death
Losing a loved one is never easy. We hope to ease the burden by providing this tax information.
- The same filing requirements that apply to individuals determine if a final income tax return must be filed for the decedent. The personal representative must file the final income tax return of the decedent for the year of death and any returns not filed for preceding years.
- The surviving spouse can file married filing jointly for the tax year in which the spouse has died. The surviving spouse may file as a qualifying widow(er) for 2 years following the death of the spouse if unmarried and have a dependent child.
- An estate tax return may also need to be filed.