Tax return filing status is a key element in preparing a tax return, but many have trouble determining which filing status to choose. The Internal Revenue Service (IRS) interprets tax legislation and makes those interpretations available to tax filers, but the publications issued to clarify tax topics are often just as confusing as the law itself.
There are a total of five different filing types: single, married filing jointly, married filing separately, head of household and qualifying widow(er) with dependent child.
Your filing type is determined by your legal status as of December 31 of the filing year. For example, it does not matter if you were married for most of a year. If your divorce is final prior to December 31, then you are single for the purposes of tax preparation.
Single people may file single, head of household or qualifying widow(er) with dependent child, so long as they meet the qualifications for the filing type. In addition, a single person may file married filing jointly the year of the spouse's death. Married people may file married filing jointly and married filing separately. In some cases, a married person can file head of household.
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Some people believe married couples receive larger deductions and lower tax rates than single people. Others believe it is exactly the opposite. The truth is that, at different times, both situations were true. In most cases, the tax relief act passed in 2003 made a married couple equivalent to two single people, thus alleviating any direct advantages to one filing status or the other. For example, if the standard deduction for a single person is $5,000, then the deduction for married filing jointly is $10,000.
Married people sometimes assume there are tax advantages to filing separately if one person draws a high salary and the other a low one. In this scenario, the higher-paid person would claim all the itemized deductions, child care, the child exemptions and any other deductions due to the couple in order to lower the taxable income to the lowest amount possible. Since the lower-paid spouse is already in a low tax bracket by basis of earnings alone, there is the possibility of a tax savings using this filing method. However, if you live in a community property state, this method might be illegal. In a community property state, half of each spouse's income is considered the earnings of the other. Therefore, each spouse would earn the exact same amount for the year. Filing separately, in this case, would actually create a larger tax burden rather than a smaller one.