Federal Income Tax Course - Chapter 5 - Filing Statuses

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Taxpayers must file under 1 of 5 filing statuses

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From lowest to highest tax rate:

1) Married Filing Jointly

2) Qualifying Widow(er) With Dependent Child

3) Head of Household

4) Single

5) Married filing separately

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First step to determine the taxpayer's filing status

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is to confirm their marital status on the last day of the tax year.

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Both an annulment and a divorce are court proceedings that dissolve a marriage. But,

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unlike a divorce, an annulment treats the marriage as though it never happened. Married couples that have filed their tax return as Married Filing Jointly, and subsequently have the marriage annulled, need to file Form 1040-X - Amended US Individual Income Tax Return and then file two separate tax returns as single taxpayers.

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A taxpayer is considered Single if, on the last day of the tax year, the taxpayer was either:

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1) Never married

2) Legally separated or divorced

3) Widowed before the first day of the tax year and not remarried during the year

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Taxpayers may use the Married Filing Jointly filing status if one of the following applies on the last day of the tax year:

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1) They are married and: - live together as husband and wife, or - Live apart but are not legally separated or divorced

2) They live together in a recognized common-law marriage

3) They are separated under an interlocutory (not final) divorce decree

4) The taxpayer's spouse died during the year and the taxpayer has not remarried

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Marriage

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a legal union between a man and a woman as husband and wife. The IRS recognizes a common-law marriage if it is recognized by the state where the taxpayers now live or where the common-law marriage began.

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In order to have a valid common law marriage, the couple must do all of the following:

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1) live together for a significant period of time

2) Intend to be married

3) hold themselves out as a married couple by using the same last name, referring to each other as "my husband" or "my wife"

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Taxpayers who file a joint return must

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1) combine their income and deductions on the same return,

2) both must sign the return

3) Are responsible for any tax owed on the return

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A US resident or citizen who is married to a nonresident alien can file a joint return as long as

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both spouses agree to be taxed on their worldwide income.

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If the taxpayer changed her name as a result of a recent marriage of divorce

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she'll want to take necessary steps to notify the Social Security Administration (SSA) to ensure the name on her tax return matches the name registered with the SSA.

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In some cases, a spouse, or former spouse, will be relieved of the tax, interest and penalties on a joint tax return. Three types of relief are available:

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1) Innocent Spouse Relief

2) Separation of Liability Relief

3) Equitable Releif

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Married Filing Separatly

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taxpayers who are married may choose the Married Filing Separately status, which means the husband and wife report their own incomes and deductions on separate returns, even if the spouse had no income. One spouse may not want to be responsible for the other spouse's tax owed.

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If a married couple files separately and one spouse itemizes deductions, the other spouse must either:

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1) Also itemize deductions, or

2) Claim "0" (zero) as the standard deduction

The taxpayer whose spouse itemizes deductions cannot take the standard deduction. A married taxpayer who files separately must show the spouce's name and social security number on the return

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In a few limited situations married taxpayers must file separately:

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1) If the spouses have different tax years and this difference is not due to the death of either spouse

2) If either spouse at any time during the year is a nonresident alien and the couple chooses not to treat the nonresident alien spouse as a US resident subject to tax on worldwide his or her income

3) If a spouse has died during the year and the personal representative of the estate elects to file a separate return

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When should married couples consider filing separately:

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If both spouses have separate income, and one has substantial medical expenses, it may be worth it to file separately. Same situation arises with miscellaneous itemized deduction with the 2% threshold, and non-business casualty losses with the 10% treshold.

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Married taxpayers who have filed Separately

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have 3 years from due date of the return to change the returns to Married Filing Jointly status using Form 1040-X Amended US Individual Income Tax Return. Returns filed jointly cannot be changed to Married Filing Separately once the due date has passed.

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If you paid medical expenses with funds deposited in a joint checking account in which you and your spouse have an equal interest:

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then you can deduct on your separate federal return half of the expenses, subject to certain limits, unless you can show that you alone paid the expenses.

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Head of Household

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status generally results in a lower tax than the Single status. So unmarried taxpayers, and certain married taxpayers, should use the Head of Household status if they qualify.

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The Head of Household status

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is for unmarried taxpayers who paid more than half the cost of keeping up a home for a qualified dependent relative who lived with them in the home mare than half of the tax year.

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Valid household expenses include:

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1) rent, mortgage interest, real estate taxes

2) Home insurance, repairs, utilities

3) Domestic help

4) Food eaten in the home

Welfare payments are not considered amounts that the taxpayer provides to keep up a home

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Exception applied to supporting parents

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The taxpayer's parents can be supported (over 1/2 of the parent's household expenses are paid by the taxpayer) in a household outside of the taxpayer's home and the taxpayer will still qualify for Head of Household status. Taxpayers can also qualify as Head of Household when they support a parent in a nursing home. The support test requires that taxpayers count what a parent actually spends for his or her own support, not all the funds available for support.

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Taxpayers may use the Head of Household status if they meet two criteria:

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1) The taxpayer was either unmarried on the last day of the year or met the test for married persons living apart with dependent children

2) For more than half of the year, the taxpayer must have paid more than half the cost of keeping up the main home of any of the following who wived with them: - The taxpayer's qualifying child - The taxpayer's qualifying relative

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Qualifying relative (for Head of Household status)

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1) Qualifying child (son, daughter or grandchild) who lived with you more than half of the year and is - single - or, married and you can claim exemption for him.

2) Qualifying relative who is your father or mother

3) Qualifying relative other than father or mother (grandparent, brother, sister who meets certain tests)

4)

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The taxpayer's qualifying child includes:

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the taxpayer's child or stepchild (whether by blood or adoption), foster child, sibling, or a descendant of one of these.

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The non-custodian parent

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has the right to claim the $1,000 Child Tax Credit and the Dependency Exemption.

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The taxpayer claim the qualifying child as a dependent, unless:

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1) The taxpayer signed a statement allowing the non-custodial parent to claim the child as a dependent, or

2) The non-custodial parent provided at least $600 for the child support and can claim the dependent under a pre-1985 agreement

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Taxpayers must specify

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the person who qualifies them for the Head of Household status.

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Qualifying Widow(er) With Dependent Child

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this filing status yields as low a tax amount as Married Filing jointly, and is available for only two years following the year of the spouse's death.

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To qualify for the widow(er) with dependent child filing status, the taxpayer must:

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1) Not have been remarried before the end of the tax year

2) Have been eligible to file a joint return for the year the spouse died; it does not matter if a joint return was actually filed

3) Have a child, stepchild, or adopted child who qualifies as the taxpayer's qualifying child for the year

4) Have furnished over half the cost of keeping up the child's home for the entire year.

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In the year a taxpayer's spouse dies, if the taxpayer does not remarry, he or she can:

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1) Use either the Married Filing jointly filing status or the Married Filing Separately status

2) Claim an exemption for the deceased spouse.

After the second year following th year of death, the widowed taxpayer may no longer use the widow(er) filing status, however might qualify for Head of Household filing status.

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To decide whether someone must file a tax return, you need to know the individual's:

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1) Filing status

2) Age

3) Gross Income

4) If the person can be claimed as a dependent on another's tax return

5) If the person is blind

6) If special taxes might be owed on different types of income

7) If some of the income is excludable or exempt

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Dependents who must file a return:

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1) A married dependent with at least $5 of income whose spouse itemizes deductions on a separate Form 1040

2) A dependent with at least $400 of net self-employment income

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Dependents who are not required to file should file a return to claim:

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1) A refund of withheld taxes

2) The earned income tax credit

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Other situations when the return must be filed

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1) The taxpayer owes any special taxes

2) The taxpayer had net earnings from self-employment of at least $400

3) The taxpayer had wages of $108.28 or more from a church or qualified church-controlled organization that is exempt from employer Social Security and Medicare taxes.

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Form 1040EZ

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is the simplest of the tax return forms. It is designed for single and joint filers with no dependents. It shows the filing status, income, AGI, standard deduction, taxable income tax, earned income credit, amount owed or refund, and signature. The form's only worksheet is for figuring the standard deduction for individuals who can be claimed as a dependent on another taxpayer's return.

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Form 1040A

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is a two-page form. It can be filed with up to 4 schedules: 1) Sch 1 to report interest and dividend income of more than $1,500; 2) Sch 2 to report child and dependent care expenses and to figure the credit; 3) Sch 3 to claim the credit for the elderly or disables; 4) Sch EIC to provide information about a child that qualifies the taxpayer for the earned income credit

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Form 1040

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is a two-page form that contains all the entries from Form 1040A plus entries for more types of income, itemized deductions, and other taxes.