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PARSIPPANY, N.J. (Profitable.com) Choosing a filing status is one of the first steps in preparing a tax return. Yet this step is also one of the most confusing for many taxpayers. As millions of Americans get ready to file, Jackson Hewitt Tax Service offers this tax tip: take time to determine which status options are available and learn the benefits of choosing one over another.
For example, married taxpayers who file a joint return (versus filing separately) will have more of their income taxed at lower tax rates than those filing separately. Those filing jointly also often receive larger tax benefits, such as earned income tax credits, credits for child and dependent care expenses, and various education credits.
“Your filing status is used to determine which tax rates and which standard deduction amounts apply to your tax return,” said Mark Steber, chief tax officer, Jackson Hewitt Tax Service Inc. “It’s possible that two people earning the same income could have different tax calculations due exclusively to a difference in filing status. If you’re not sure which status best suits your situation, be sure to speak with a knowledgeable tax preparer to determine the most appropriate option.”
Here are common questions/considerations to help taxpayers determine the right filing status:
- I am married, but how do I know if we should file jointly?
- The Married Filing Jointly status often provides the largest standard deduction and the lowest effective tax rate. You can use this status even if you are married and live apart or if only one spouse is working. Many tax benefits have a “phase-out” range (when the amount of credit available gradually reduces as the taxpayer approaches the income limit to qualify) that is greater under Married Filing Jointly; these include deductible IRA contributions, tuition and fees deduction, and the student loan interest deduction. This status also offers higher phase-out ranges for many credits such as the Earned Income Tax Credit (EITC), Additional Child Tax Credit and various education credits.
- When should I consider filing separately, even though I am married?
- Many married couples assume that they must file a joint return, but in some cases, completing separate returns may be a better option. These include when couples are in the middle income range or when one spouse has high medical expenses for the year. The Married Filing Separately filing status allows the highest effective tax rate and the lowest phase-out range for deductible IRA contributions, itemized deductions and personal exemptions. But keep in mind that deductions for education expenses and the EITC are not allowed. The Child Tax Credit is one of the few credits allowed when using this status.
- What is the benefit of claiming Head of Household status?
- Filing as Head of Household offers a higher standard deduction than Single or Married Filing Separately with a lower effective tax rate. If you are married, you may be considered unmarried for filing purposes and claim the filing status if you meet certain requirements. To qualify as Head of Household when married, you must pay more than half the cost of a household for you and a dependent child that lived with you more than half the year, and you must not have lived with your spouse during the last six months of the year. Spouses separated due to military or other working conditions do not qualify.
- When should I file as Single?
- You can file as single if you are unmarried and do not qualify for any other filing status. You are eligible for all tax credits and adjustments and have a lower standard deduction than married filing separately. Unlike Married Filing Separately, you are allowed to claim the EITC. However, unmarried taxpayers who have a dependent should check to see if they qualify for the Head of Household filing status, as that will provide more tax benefits.
- Should I file as Single even if I have a dependent, or is Head of Household more appropriate?
- If you qualify, the Head of Household filing status is more advantageous than the Single filing status. The standard deduction amount and the effective tax rate is lower
“Choosing an incorrect filing status can impact whether a taxpayer is eligible for certain tax credits and deductions, ultimately affecting the amount of a tax refund or tax liability due,” added Steber. “If more than one filing status applies to you, choose the one that gives you the lowest tax obligation. A tax preparer can help review the options.”
About Jackson Hewitt Tax Service Inc.
Based in Parsippany, N.J., Jackson Hewitt Tax Service Inc. (NYSE: JTX) is an industry leading provider of full service individual federal and state income tax preparation, with franchised and company-owned office locations throughout the United States. Jackson Hewitt Tax Service® also offers an online tax preparation product at www.jacksonhewittonline.com. For more information, or to locate the Jackson Hewitt® office nearest to you, visit www.jacksonhewitt.com or call 1-800-234-1040. Jackson Hewitt can also be found on Facebook and Twitter.