The filing status is the most important deciding factor and the basis of your tax bill hence it is important to have a basic understanding of various tax filing status available.
The filing status of the taxpayer depends largely on the marital status of the taxpayer and supplementary factors such as presence of dependents, whether living with the spouse or not, legally separated, percentage of home keeping expenses shared, death of the spouse etc.
The tax bracket, exemptions, credits and deductions have a huge dependency on the filing status hence it is important to choose the apt filing status. It is not mandatory to retain the same filing status each year. Depending on the events and changes taking place in your life, your filing status can change. It is best to seek your tax consultant's advice to gauge the impact of a particular event or change on your filing status.
1) Single A taxpayer with no dependents should file as single for if on the last day of the tax year, he or she is unmarried or legally divorced, annulled or widowed (not remarried during the year).
2) Married Filing Jointly (MFJ) Married taxpayers can use this filing status provided they live together legally as husband and wife or live separately but are not legally divorced or separated. In addition a widowed tax payer may use this status if the spouse died during the year and the surviving spouse has not remarried. This filing status has more tax benefits if compared with single filings.
3) Married Filing Separately (MFS) Married taxpayers who are eligible for the married filing jointly status can voluntarily choose to use married filing separated status. Under this status the income and expenses of the couple are reported on separate tax returns whereas credits and exemptions entitlement is halved. If one spouse decides to itemize his/her deductions the other spouse cannot claim standard deduction and must itemize.
4) Head of Household (HOH) There are three eligibility requirements for attaining the filing status as Head of Household The taxpayer must be single, legally divorced or separated as on the last day of the tax year. The taxpayer must have a qualifying dependent living in his/her home. The taxpayer must have paid more than half the cost of keeping up a home in the tax year. 5) Qualifying Widow(er) with a Dependent Child We have already discussed under married filing jointly status that the surviving spouse can file as MFJ in the year the spouse dies. For the following two years the surviving spouse can file as qualifying widow(er) provided he/she does not re-marry.