MODULE 5: Filing status

Overview of Filing Statuses

  • The choice of filing status has significant implications for a taxpayer's tax brackets and standard deduction.

Unmarried Taxpayers

  • Single

    • Default filing status for unmarried taxpayers.

    • Generally has the lowest standard deduction and highest tax brackets, making it less financially favorable.

  • Head of Household

    • For unmarried individuals or those considered unmarried (e.g., under abandoned spouse rules).

    • Must maintain a household for a qualifying person (a dependent).

Qualifying Person Requirements for Head of Household

  • A qualifying person must meet specific criteria:

    • They must be a dependent of the taxpayer (either a qualifying child or qualifying relative).

    • The dependent must be related to the taxpayer, not just a qualifying relative who only meets the relationship test by living with the taxpayer.

    • Must live with the taxpayer for more than half of the year or must be a parent of the taxpayer.

Example Scenario with Jason and Layla

  • Jason: A single taxpayer with a dependent, Layla.

    • Layla is a qualifying relative because she lived with Jason, had zero income, and Jason provided all her support.

    • Layla does not qualify as a qualifying person for Jason to file as Head of Household since she is not related to him.

Identifying Other Dependents

  • Maria: Jason’s mother, also a qualifying relative.

    • Maria did not live with Jason but was provided more than 50% support.

    • Since Maria is related to Jason, she qualifies as a qualifying person, allowing Jason to file as Head of Household.

Married Taxpayers

  • Married couples have options of filing:

    • Jointly: Both report income and deductions on one tax return; generally the most financially beneficial option.

    • Separately: Each spouse reports their share separately; sometimes beneficial for specific tax situations (e.g., high medical expenses or income-driven student loan repayments).

Special Considerations

  • If one spouse passes away during the tax year, the surviving spouse is considered married for that year.

Qualifying Widow/Widower Status

  • Available for two years after a spouse's death if the surviving spouse has a dependent child.

  • The surviving spouse can use this status for better tax rates and standard deductions.

Example Scenario with Mark and Mary

  • Mark: Married to Mary until her death in 2024.

    • Mark can file as Married Filing Jointly or Separately in 2024 (the year Mary passed).

    • In 2025 and 2026, Mark can file as a Qualifying Widow/Widower with dependent child since he has a child named Matt.

    • In 2027, Mark becomes an unmarried individual and must choose between Single or Head of Household status, with the latter being possible due to Matt's dependency and residence.

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