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Tax filing status may appear to be the most straightforward box to fill in your yearly tax return but most taxpayers underestimate the potential of this information to reduce your net tax burden. People often associate their marital status with their tax filing status when, in reality, the IRS has 5 distinct categories for tax filing status.
You must already know that you can file as either single, married but filing jointly, married but filing separately, head of household, or qualifying widower. Beyond this, you must also keep in mind the following important pointers when it comes to your tax filing status.
1. You are single to the IRS only if you do not have qualifying dependents
In other words, you cannot identify yourself as single in your tax return just because you are not married yet. If you have dependents like a step-sibling or adopted child, you then become the head of household to the IRS rather than a single taxpayer. You become eligible for the dependent tax credits only when you get the filing status right.
2. You are married even when you get hitched on December 31
When you are filing your taxes in 2022, you will be calculating your taxable income till December 31, 2021. And your filing status will also vary accordingly depending on when you get married. The IRS asks you to file as per your marital/life status as of December 31. So, if you get married on December 31 the previous year, you will have to file your taxes as married even when you were single for 364 days of the last tax year.
3. You get massive tax benefits by filing jointly as married
Yes, the total taxable income might rise when you file jointly as married, and yes, the tax liability distribution may become unequal but the IRS provides a host of tax benefits to couples who file their taxes together. You become eligible for tax breaks like earned income deductions and lifelong learning tax credit. You can also claim American Opportunity Credit and Student Loan Interest Credit by filing jointly.
4. At times, filing separately as a married couple may make sense
This is true if one partner earns way more than the other where the low-earning partner unnecessarily gets dragged to the higher income tax bracket. You may then choose to file your taxes separately because the associated tax breaks of filing jointly do benefit you much then. Another reason couples choose to file taxes separately is when the type of work is dissimilar. One might be a business owner eligible for certain tax credits. He/she may want to keep his/her tax returns separate.
5. You are head of house only if your dependent qualifies as one
The IRS has strict guidelines on whom it considers as a qualifying dependent. For example, your spouse is not a dependable, regardless of his/her earning status. But you can claim your own child as a dependent if he/she stayed with you for more than 6 months in the last tax year and you paid over 50% of his/her living expenses. Additionally, you can only file as head of household if you are unmarried as of December 31, paid more than 50% of home expenses, and the dependent stayed with you for over 182 days.
6. Qualifying widow(err) filing status is only valid for 2 years
This filing status is especially tricky to understand. If you lost your spouse within the tax year, you can still file as married but jointly/separately as you have done till now. Post that, you can file as a qualifying widow(er) only for 2 subsequent tax years. If you remain unmarried following those 2 years, you need to change your filing status to either single or head of household.
Your filing status decides your tax breaks
Naturally, you will want to fill the box right to claim all associated tax credits and deductions and reduce your tax burden by a substantial amount. In the end, you might also get a tax refund from the IRS and fulfill a long-standing financial goal this tax season.
One such goal you can definitely fulfil is buying a used car in Easley. And you do not have to give up your entire tax refund money for the same as Family Auto’s down payment deals start as low as $500 in certain cases. You can always trade in your old car at Family Auto of Easley to increase the down payable. And you can find affordable used vehicles exactly in the price range you want.
Along with these, we provide you with the best bad credit financing with easy approval. And our used cars for sale in Easley come with a comprehensive 2 years/36,000 miles warranty. The tax money you use to buy a used car from Family Auto becomes an investment with high returns. Visit us as soon as you get your refund and get home a quality used car or truck.
Along with these, we provide you with the best bad credit financing with easy approval. And our used cars for sale in Easley come with a comprehensive 2 years/36,000 miles warranty. The tax money you use to buy a used car from Family Auto becomes an investment with high returns. Visit us as soon as you get your refund and get home a quality used car or truck.