Federal tax returns are never fun to complete. Their complex and convoluted nature causes serious stress and even fear in those trying to do their own taxes – even with online tax services. Getting as much of a refund as possible while reducing tax liability is the goal and it begins with the question of filing status.
Filing status is extremely important as it affects the filer’s tax bracket and the amount they’ll owe. Filing status also determines how much – if any – refund that will be received and the deductions and credits for which individuals are eligible. The more deductions and credits for which an individual or family qualifies, the less their tax liability will be. Individuals can file as:
- Single
- Head of Household
- Qualifying Widow(er) with Dependent Child
- Married Filing Jointly
- Married Filing Separately
Single
Unmarried people on Dec. 31, those whose divorce was finalized before that date, and people that have never been married can claim this status. It can reduce tax liability for individuals with children, providing certain conditions are met.
Head of Household
Filing in this category lowers the tax rate and provides a higher standard deduction for single filers. As a head of household, individuals will need to have a higher income than a single filer before they owe income taxes.
Qualifying Widow(er) with Dependent Child
Men or women filing this way receive a higher standard deduction and lower tax rate. It can be taken for two years following the death of a spouse, provided they remain single. The filer must have a dependent child, stepchild, or adopted child and meet income, age, and support requirements. This category and married filing jointly offer the highest standard deduction. These filers may also qualify for tax breaks on investments.
Married Filing Jointly
Filers in this category can help couples qualify for a lower tax bracket, less tax liability, and may even net a refund. There are a number of credits and deductions that can be taken, especially with dependent children that aren’t available to single filers or married couples filing separate returns.
Married Filing Separately
This can be beneficial if one spouse earns significantly less money than the other. The individual making less may then be eligible to benefit from certain deductions of which the other spouse may not qualify.
At Peavy and Associates PC our mission is to assist you with all your tax preparations, payroll and accounting needs. We provide our clients with professional, personalized accounting services and guidance in a wide range of financial and business needs. Give us a call today and discover why our clients return to Peavy and Associates, PC year after year!