Tax Time: Understanding Your Filing Status

With the April IRS deadline for filing personal federal tax returns fast approaching, the first and foremost question you must answer is "What status should I file under?" It is an important determination. Analyze the criteria for filing for each status carefully before making a determination. It could be the difference between getting a tax refund and owing the IRS money. Even though you may qualify for more than one filing status, you may find that you can maximize your refund by choosing the appropriate filing status.

Single

You can choose to file under the single status if you have never been married, are legally separated or divorced, or if you were widowed before January 1 of the current tax year with no dependants. The 1040EZ is a simple tax form for single people who want to file an uncomplicated tax return. While you may find filing under the single status is relatively simple, you will also be limited to the amount of deductions you are able to claim.

Married Filing Jointly

The "Married Filing Jointly" status is for taxpayers who are married and want to file a joint tax return. You will find the maximum amount of deductions and the lowest tax rate under this tax filing status. To qualify for the married filing jointly status, both you and your spouse must sign your tax return. Filing jointly also means that both spouses are responsible for any tax debt owed. In some states, common-law partners may file as married filing jointly. As of 2010, these states included Alabama, Colorado, District of Columbia, Texas, Pennsylvania, Iowa, Kansas, Montana, Rhode Island and South Carolina.

Married Filing Separately

Couples whose personal finances are more complicated may choose to file under the "Married Filing Separately" status. The highest tax rates apply to taxpayers who choose to file under this status. Each spouse will complete a separate return and report individual income and deductions. Filing under this status may prevent being liable for taxes owed by a spouse unless laws prevent this in community property states.

Head of Household

A "Head of Household" tax filing status is ideal for single taxpayers who are responsible for the care of children or other dependents for more than half of the year. The tax rates for head of household are lower than those of single filing taxpayers and more deductions are generally available. Determining the qualifying dependants under this status can be tricky. Some have to live with you and others do not. You should get professional tax advice if you are unsure which dependants you may claim.

Qualifying Widow(er) with Dependent Child

If your spouse died within the last two years, you can file under this status and receive the same low tax rates as the married filing jointly status. If your spouse died during the current tax year, you would still file under married filing jointly. You can only file under this status if you remained unmarried and you have qualifying dependants who lived with you for over half of the tax year.

Sources:

Internal Revenue Service: Understanding Taxes -Filing Status

More From This Contributor:

Legal Considerations for Choosing a Business Entity
Advertising: Don't Put All Your Eggs in One Basket!
The Top Ten Attributes of a Good Employee