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There are five: Single, Married Filing Jointly, Married Filing Separately, Head of Household and Qualifying Widow(er) with Dependent Child. Your filing status is used to determine your filing requirements, standard deduction, eligibility for certain credits and deductions, and your correct tax.
Some people may qualify for more than one filing status. Here are eight facts about filing status that the IRS wants you to know so you can choose the best option for your situation.
- Your marital status on the last day of the year determines your marital status for the entire year.
- If more than one filing status applies to you, choose the one that gives you the lowest tax obligation.
- Single filing status generally applies to anyone who is unmarried, divorced or legally separated according to state law.
- A married couple may file a joint return together. The couple’s filing status would be Married Filing Jointly.
- If your spouse died during the year and you did not remarry during 2017, usually you may still file a joint return with that spouse for the year of death.
- A married couple may elect to file their returns separately. Each person’s filing status would generally be Married Filing Separately.
- Head of Household generally applies to taxpayers who are unmarried. You must also have paid more than half the cost of maintaining a home for you and a qualifying person to qualify for this filing status.
- You may be able to choose Qualifying Widow(er) with Dependent Child as your filing status if your spouse died during 2016 or 2017, you have a dependent child, have not remarried and you meet certain other conditions.
- There’s much more information about determining your filing status in IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.
The IRS highlights six important facts about these as tips that will help you file your tax return.
- Exemptions reduce your taxable income. There are two types of exemptions: personal exemptions and exemptions for dependents. For each exemption you can deduct $4,150 on your tax return.
- Your spouse is never considered your dependent. On a joint return, you may claim one exemption for yourself and one for your spouse.
- If you’re filing a separate return, you may claim the exemption for your spouse only if they had no gross income, are not filing a joint return, and were not the dependent of another taxpayer.
- Exemptions for dependents. You generally can take an exemption for each of your dependents. A dependent is your qualifying child or qualifying relative. You must list the Social Security number of any dependent for whom you claim an exemption.
- If someone else claims you as a dependent, you may still be required to file your own tax return. Whether you must file a return depends on several factors including the amount of your unearned, earned or gross income, your marital status and any special taxes you owe.
- If you are a dependent, you may not claim an exemption. If someone else – such as your parent – claims you as a dependent, you may not claim your personal exemption on your own tax return.
- Some people cannot be claimed as your dependent. Generally, you may not claim a married person as a dependent if they file a joint return with their spouse. Also, to claim someone as a dependent, that person must be a U.S. citizen, U.S. resident alien, U.S. national or resident of Canada or Mexico for some part of the year. There is an exception to this rule for certain adopted children. See IRS Publication 501, Exemptions, Standard Deduction, and Filing Information for additional tests to determine who can be claimed as a dependent.
- For more information on exemptions, dependents and whether you or your dependent needs to file a tax return, see IRS Publication 501.
Here are 10 things the IRS wants parents to consider when filing their taxes this year.
- Dependents In most cases, a child can be claimed as a dependent in the year they were born. For more information see IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.
- Child Tax Credit You may be able to take this credit for each of your children under age 17. If you do not benefit from the full amount of the Child Tax Credit, you may be eligible for the Additional Child Tax Credit. For more information see IRS Publication 972, Child Tax Credit.
- Child and Dependent Care Credit You may be able to claim this credit if you pay someone to care for your child or children under age 13 so that you can work or look for work. See IRS Publication 503, Child and Dependent Care Expenses.
- Earned Income Tax Credit The EITC is a tax benefit for certain people who work and have earned income from wages, self-employment or farming. EITC reduces the amount of tax you owe and may also give you a refund. IRS Publication 596, Earned Income Credit, has more details.
- Adoption Credit You may be able to take a tax credit for qualifying expenses paid to adopt an eligible child. If you claim the adoption credit, you must file a paper tax return with required adoption-related documents. For details, see the instructions for IRS Form 8839, Qualified Adoption Expenses.
- Children with earned income If your child has income earned from working, they may be required to file a tax return. For more information, see IRS Publication 501.
- Children with investment income Under certain circumstances a child’s investment income may be taxed at their parent’s tax rate. For more information, see IRS Publication 929, Tax Rules for Children and Dependents.
- Higher education credits Education tax credits can help offset the costs of higher education. The American Opportunity and the Lifetime Learning Credits are education credits that can reduce your federal income tax dollar-for-dollar. See IRS Publication 970, Tax Benefits for Education, for details.
- Student loan interest You may be able to deduct interest paid on a qualified student loan, even if you do not itemize your deductions. For more information, see IRS Publication 970.
- Self-employed health insurance deduction If you were self-employed and paid for health insurance, you may be able to deduct any premiums you paid for coverage for any child of yours who was under age 27 at the end of the year, even if the child was not your dependent. For more information, see the IRS website.
If you, your spouse or dependents had significant medical or dental costs during the tax year, you may be able to deduct those expenses when you file your tax return. Here are eight things the IRS wants you to know about medical and dental expenses and other benefits.
- You must itemize your deductible qualifying medical and dental expenses if you itemize on Form 1040, Schedule A.
- Deduction is limited you can deduct total medical care expenses that exceed 7.5 percent of your adjusted gross income for the year. You figure this on Form 1040, Schedule A.
- Expenses must have been paid in the tax year. You can include the medical and dental expenses you paid during the year, regardless of when the services were provided. You’ll need to have good receipts or records to substantiate your expenses.
- You cannot deduct reimbursed expenses your total medical expenses for the year must be reduced by any reimbursement. Normally, it makes no difference if you receive the reimbursement or if it is paid directly to the doctor or hospital.
- Whose expenses qualify? You may include qualified medical expenses you pay for yourself, your spouse and your dependents. Some exceptions and special rules apply to divorced or separated parents, taxpayers with a multiple support agreement or those with a qualifying relative who is not your child.
- Types of expenses that qualify: You can deduct expenses primarily paid for the diagnosis, cure, mitigation, treatment or prevention of disease, or treatment affecting any structure or function of the body. For drugs, you can only deduct prescription medication and insulin. You can also include premiums for medical, dental and some long-term care insurance in your expenses. Since 2011, you can also include lactation supplies.
- Transportation costs may qualify You may deduct transportation costs primarily for and essential to medical care that qualify as medical expenses. You can deduct the actual fare for a taxi, bus, train, plane or ambulance as well as tolls and parking fees. If you use your car for medical transportation, you can deduct actual out-of-pocket expenses such as gas and oil, or you can deduct the standard mileage rate for medical expenses, which is 17 cents per mile from January 1 – December 31, 2017.
- Tax-favored saving for medical expenses Distributions from Health Savings Accounts and withdrawals from Flexible Spending Arrangements may be tax free if used to pay qualified medical expenses including prescription medication and insulin.
For additional information, see Rev. Proc 2010-51 and Notice 2016-79.
If you work for yourself, as an independent contractor, or you carry on a trade or business as a sole proprietor, you are generally considered to be self-employed. Here are six key points the IRS would like you to know about self-employment and self- employment taxes:
- Self-employment can include work in addition to your regular full-time business activities, such as part-time work you do at home or in addition to your regular job.
- If you are self-employed you generally have to pay self-employment tax as well as income tax. Self-employment tax is a Social Security and Medicare tax primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners. You figure self-employment tax using a Form 1040 Schedule SE. Also, you can deduct an employer’s equivalent portion of your self-employment tax in figuring your adjusted gross income. In prior years, the deduction was equal to one-half of self-employment tax.
- You file an IRS Schedule C, Profit or Loss from Business, or C-EZ, Net Profit from Business, with your Form 1040.
- If you are self-employed you may have to make estimated tax payments. This applies even if you also have a full-time or part-time job and your employer withholds taxes from your wages. Estimated tax is the method used to pay tax on income that is not subject to withholding. If you fail to make quarterly payments you may be penalized for underpayment at the end of the tax year.
- You can deduct the costs of running your business. These costs are known as business expenses. These are costs you do not have to capitalize or include in the cost of goods sold but can deduct in the current year.
- To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your field of business. A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be indispensable to be considered necessary.
Did you know that almost everything you own and use for personal or investment purposes is a capital asset? Capital assets include a home, household furnishings and stocks and bonds held in a personal account. When you sell a capital asset, the difference between the amount you paid for the asset and its sales price is a capital gain or capital loss.
- Almost everything you own and use for personal purposes, pleasure or investment is a capital asset.
- When you sell a capital asset, the difference between the amounts you sell it for and your basis – which is usually what you paid for it – is a capital gain or a capital loss.
- You must report all capital gains.
- You may only deduct capital losses on investment property, not on personal-use property.
- Capital gains and losses are classified as long-term or short-term. If you hold the property more than one year, your capital gain or loss is long-term. If you hold it one year or less, the gain or loss is short-term.
- If you have long-term gains in excess of your long-term losses, the difference is normally a net capital gain. Subtract any short-term losses from the net capital gain to calculate the net capital gain you must report.
- The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income. For 2017, the capital gains rate for most people is 15 percent for single filers with taxable income up to $418,400 ($470,700 for married filing joint). For income above those amounts the additional capital gains and qualified dividends are subject to a rate of 20%. For lower-income individuals (below $37,950), the rate may be 0 percent on some or all of the net capital gain. Rates of 25 or 28 percent may apply to depreciation recapture and collectibles types of net capital gain, respectively.
- If your capital losses exceed your capital gains, you can deduct the excess on your tax return to reduce other income, such as wages, up to an annual limit of $3,000, or $1,500 if you are married filing separately.
- If your total net capital loss is more than the yearly limit on capital loss deductions, you can carry over the unused part to the next year and treat it as if you incurred it in that next year.
- Form 8949, Sales and Other Dispositions of Capital Assets, will be used to calculate capital gains and losses. Use Form 8949 to list all capital gain and loss transactions. The subtotals from this form will then be carried over to Schedule D (Form 1040), where gain or loss will be calculated.
- For more information about reporting capital gains and losses, see the Schedule D instructions, Publication 550, Investment Income and Expenses.
- Amount paid to pack and store your household goods and personal items
- Amount it costs to travel from your old home to your new home. This includes mover’s costs, transportation, and lodging along the way. However, you can’t claim the cost of meals during the move.
In case of your own vehicle being used during the move:
- Mileage traveled /or
- Out-of-pocket expenses incurred, like the cost of gasoline and oil
- The mileage rate for 2017 is 17 cents/mile.
[Please Refer IRS Publication 521 for complete details]
Your return may be complicated by a divorce or legal separation might complicate your return. Be involved in how your divorce decree is written, and understand its terms. To enable yourself and your tax preparer to handle the tax implications familiarized yourself with the terms and your agreement
- Custodial parent – Gets to claim the child as a dependent and gets child tax credit unless agreed upon otherwise in divorce decree and when Form 8332 is filed in favor of Noncustodial parent. Usually the child lives with this parent for more nights during the tax year. The other parent is the noncustodial parent.
- Child support – Not deductible by the payer, and the payee does not have to treat as income.
- Alimony – (aka spousal support) Is deductible by the payer and taxable to the payee. This should be clearly defined in the divorce agreement.
- Alimony recipient – Treated as income (consider it earned for eligibility to make an IRA contribution). You may need to make estimated tax payments or increase your withholding on your W-2 income.
- Alimony payer: It is an above the line deduction.
The below may be retained by custodial parent, that still qualifies as head of household:
- Earned Income Credit (EIC)
- Child and dependent care credit
- Exclusion for childcare benefits
The noncustodial parent CANNOT claim
- Child and dependent care credit
- Exclusion for childcare benefits
- Head of household filing status
- EIC
This applies even if the custodial parent released the dependency exemption.
Note: A legal decree does NOT trump the tax law definition of custodial parent. If there’s any confusion, Claim rights of either of parents can be disallowed by the IRS.
