Tax Status
What a client pays the Internal Revenue Service depends on the person's filing status, which also determines whether the tax payer can take certain tax deductions or credits that could lower his or her tax bill. In some cases, tax status can even be the deciding factor in whether the person has to file at all. There are five official tax status options:
- Single: This applies to
never-married, unmarried and divorced taxpayers.
- Married Filing Jointly:
In this case, as with the single status, you are considered married for the
whole tax year as long as you were married on the last day of the tax year.
When you file jointly, both husband and wife report all their income on one
Form 1040. This status offers some tax credits not available for filers using
another status.
- Married Filing Separately: Here couples segregate their income, deductions, and
exemptions and file two individual returns. Unless you are required to file
separately, you should figure your tax both on a joint return and on separate
returns. This way you can make sure you are using the method that results in
the lowest combined tax. However, you will generally pay more combined tax on
separate returns than you would on a joint return because the tax rate is
higher for married persons filing separately. Also, some tax credits and
deductions are not available to married taxpayers filing separately.
- Head of Household: This
applies to unmarried taxpayers providing more than half the cost of keeping up
a home (for more than six months) for the filer and a qualifying relative. Tax
rates for qualified filers usually are more favorable than those in the single
or married filing separately.
- Qualifying Widow or Widower with a Dependent Child: This status is available for two years following the year of a spouse's death and applies the filing data afforded married joint filers. The surviving spouse must have cared for a dependent child who lived with the adult for the full tax year. During that time, the taxpayer must have paid for more than half the cost of keeping of the home.
