Tax Check: Is Your Filing Status Accurate?

February 12, 2007

Choosing the right filing status is important. Not only does it determine the tax rate that applies to your taxable income, reports the Connecticut Society of CPAs, but also the amount of standard deduction you’re eligible for and the types of deductions and credits you can take. CPAs offer an explanation of the five filing status options to help you select the right one for your circumstances.

Single

You are considered to be a single filer if you are unmarried, divorced, or legally separated from your spouse on the last day of the tax year. If you have dependents that you support, you may qualify for a more favorable filing status, such as head of household or qualifying widower.

Married Filing Jointly

You may file jointly if (1) on the last day of the tax year you were married and living together as husband and wife, or (2) were married and living apart, but not legally separated under a divorce decree or separate maintenance agreement. You may also file jointly if your spouse died in 2006 and you did not remarry.

When you’re married and file a joint return, both spouses report their income on the same Form 1040 and both are responsible for any tax due. For married couples, generally filing jointly offers the greatest tax savings. But despite the tax advantages, there are certain instances (described below) when it may not be advisable to file jointly.

Married Filing Separately

Couples who are married but file separately report their income, exemptions, and deductions on separate individual returns. In most cases, these couples pay a higher tax rate than joint filers. That is due, in part, to the fact that when you file separately you lose some of the tax credits and deductions you could have claimed on a joint return. These include the child and dependent care credit, the adoption expense credit, and the Hope Scholarship and Lifetime Learning credits. You also lose out on deducting student loan interest.

However, there are times when filing separately might benefit your overall tax situation – for example, if one spouse has high medical or miscellaneous itemized deductions. These expenses are deductible only to the extent that they exceed a certain percentage (7.5 percent for medical and 2 percent for miscellaneous deductions) of your adjusted gross income (AGI). By filing separately, the AGI for each spouse is reduced, making it easier to qualify for the deduction.

Head of Household

Head of Household tax rates are lower than those for single or married filing separately taxpayers. To be eligible, you must be unmarried at the end of the year and not entitled to file as a qualifying widow(er) with a dependent child. You also must have paid more than half the cost of maintaining the main home of a qualifying person who lived in the home for more than six months. In some cases, married persons who have not lived with their spouses may qualify for this status.

Qualifying Widow or Widower with Qualifying Child

You are generally eligible to use the qualifying widow(er) with dependent child status as your filing status for the two years following your spouse’s death if you have not remarried. To qualify, you must meet the following criteria:

(1) You were entitled to file a joint return with your spouse the year before he/she died (regardless of whether you actually did);

(2) You have a child, stepchild, adopted child, or foster child that you claim as a dependent;

(3) For the past year, you paid more than half the cost of maintaining your main home in which your dependent child lived for more than half of the year. Choosing the right filing status can make a significant difference in the amount of taxes you pay.

A CPA can help you determine the most advantageous filing status for your situation.

Questions? Contact Mark Zampino at 860-258-4800, ext. 212 or markz@cscpa.org.