2009 U.S. Income Tax: Personal Filing Status

With the 2009 year coming to a close, tax season is fast approaching. Now is the time to start planning your tax returns to help eliminate errors made in the last minute rush. I've already given an overview of the tax law changes in 2009 as well as provided guidance on which form to use. Today, I'd like to look at filing status. You'd think It would be easy after all there are only five options: Single, Head of Household, Married Filing Jointly, Married Filing Separately and Qualifying Widow(er) With Dependent Child. And if you file the form 1040EZ, the choice gets even simpler: you can only use the for if you file single or married filing jointly.

Many people check the little box without giving much thought to it. But since it can have a significant impact on your tax liability, it pays to make sure you mark the right one. So here's a quick guide to making the right choice.

Single

The IRS definition of single goes: "Your filing status is single if, on the last day of the year, you are unmarried or legally separated from your spouse under a divorce or separate maintenance decree, and you do not qualify for another filing status." It really is as straight forward as it sounds. As long as you are unmarried as of December 31, 2009, you can file Single. Where it gets a little complicated is the death of a spouse. As I'll discuss later, a widow(er) can file under a special filing status for up to two years after the death of a spouse, as long as they remain unmarried. At the end of the two year period, they will then have to file Single, unless they can qualify as Head of Household.

Who gets to decide if you are married or not? After all some states recognize common law marriage, others do not. Of course, the final decision is based on state law, as long as the state you're in says you are married, then you are. If the state says your legally separated according, then you go with unmarried. The only area that federal law trumps the state is same-sex unions. Federal law still defines marriage, for tax purposes, as a legal union between man and wife. Until that gets changes, gay and lesbian couples are unable to file joint returns.

Head of Household

As the Head of Household, you can reap a substantial tax advantage. The tax rate is usually lower than single or married filing separately. You also receive a higher standard deduction than if you file as single or married filing separately. There are three tests that must be met to mark this filing status. 1) You must be unmarried or “considered unmarried” on the last day of the year. 2) You paid more than half the cost of keeping up a home for the year. 3) A “qualifying person” lived with you in the home for more than half the year, except for temporary absences, such as school or military service. However, if the “qualifying person” is your dependent parent, he or she does not have to live with you.

To file for Head of Household, there are a couple of things to keep in mind. You must file separate returns, you and your spouse had to have lived in separate houses for the last 6 months of the year, your home was the main home for a qualifying dependent and you paid at least half the costs of keeping the home for the year. The first two are pretty clear, it's the last two that tend to trip people up.

Who qualifies as a qualifying dependent? Typically, this means any child, grandchild, immediate family member who meets the IRS's requirements, including age, relationship, support, income and residency. I'll go deeper into this topic in my next hub.

How do you determine if you've paid half the costs? Simple, just add up all the expenses for the home, including rent/mortgage, utilities, food eaten at home, property taxes, mortgage interest, property insurance, upkeep and repairs, and then subtract any amounts that were paid by other people. If your mom pays the water bill, subtract that. If a roommate helps buy food, subtract that. Who pays for your clothes? Trick question, clothes and other personal expenses are not included in the cost of maintaining your home!

Married Filing Jointly


About being marries: To be considered married, you must pass one of the four tests: 1. You are married and living together as husband and wife. 2. You are living together in a common law marriage that is recognized in the state where you now live or in the state where the common law marriage began. 3. You are married and living apart, but not legally separated under a decree of divorce or separate maintenance. 4. You are separated under an interlocutory decree of divorce. For purposes of filing a joint return, you are not considered divorced.

Generally, this is the most generous tax status available. I know people talk about the marriage tax, but the fact is filing jointly has the lowest tax liability, all other things being equal. Standard deductions are also higher, in this class. So how do you take advantage of it? Get married. As long as you are considered married on the last day of the year, you can file jointly. That means that all income and all deductions can be combined, even if one spouse had no income.

What if your spouse dies during the year? You can still file jointly for that year.

What if I lived in a state that recognizes common law marriage and move to a state that doesn't? You'll want to check this with at local tax expert to be certain, but generally, under the Constitution's "Full faith and credit clause", states will recognize the marriage status you held in the previous state. The exception, as I've mentioned, is same-sex union. Even if the state recognizes it, the Feds do not.

What if my divorce was finalized on December 31? Your status for the year is determined by your status on the last day. So if your divorce is final at year's end, you would file single.

Any other questions or situations that have come up that I should cover? Please, let me know. I'll find an answer.

Married Filing Separately

With all the benefits that filing jointly provide, why would you ever want to file separately? Well, for one thing, what if one spouse has a significant tax burden still outstanding, you may chose to file separately so that one of you still gets a refund. In order to help keep tax time simple for the IRS agents, the agency really tries to discourage people filing more tax returns than necessary in a household. So they have imposed a number of rules for those who file separately. For instance:

  1. Your tax rate generally will be higher than it would be on a joint return.
  2. You cannot take the credit for child and dependent care expenses in most cases, and the amount that you can exclude from income under an employer's dependent care assistance program is limited to $2,500, instead of $5,000 if you filed a joint return.
  3. You cannot take the earned income credit.
  4. You cannot take the exclusion or credit for adoption expenses in most cases.
  5. You cannot take the education credits, the deduction for student loan interest, or the tuition and fees deduction. You also cannot exclude any interest income from qualified U.S. savings bonds that you used for higher education expenses.
  6. If you lived with your spouse at any time during the tax year you cannot claim the credit for the elderly or the disabled, you will have to include in income up to 85% of any social security or equivalent railroad retirement benefits you received, and you cannot roll over amounts from a traditional IRA into a Roth IRA.
  7. The following credits and deductions are reduced at income levels that are half of those for a joint return: the child tax credit, the retirement savings contributions credit,  Itemized deductions, as well as the deduction for personal exemptions and your capital loss deduction limit is $1,500.
  8. If your spouse itemizes deductions, you cannot claim the standard deduction. If you can claim the standard deduction, your basic standard deduction is half the amount allowed on a joint return.
  9. Your first-time homebuyer credit is limited to $3,750 (instead of $7,500 if you filed a joint return).

The best thing to do, in cases like this, is to figure your tax both ways and see which comes out with the better position overall.

Qualifying Widow(er) With Dependent Child

You may be eligible to use qualifying widow(er) with dependent child as your filing status for 2 years following the year your spouse died. For example, if your spouse died in 2007 and you have not remarried, you may be able to use this filing status for 2008 and 2009. This filing status entitles you to use joint return tax rates and the highest standard deduction amount, assuming you do not itemize deductions.

Of course, to use this filing status, you must have a qualifying child that you provide support for during the year. The requirements are the same as I discussed under Head of Household, and I promise, I will post the details in my next hub.

In order to be eligible, you must pass all five of the following tests:

  • You must have been entitled to file a joint return with your spouse for the year your spouse died. It does not matter whether you actually filed a joint return, but you have to show you qualified to do so.
  • Your spouse died in 2007 or 2008 and you did not remarry before the end of 2009.
  • You have a child or stepchild for whom you can claim an exemption. This does not include a foster child.
  • This child lived in your home all year, except for temporary absences, for instance school or military service. There are exceptions for a child who was born or died during the year and for a kidnapped child.

· You paid more than half the cost of keeping up a home for the year.

As long as you meet these test, you may be able to file as a widow with qualifying child. Just be aware that the benefit is only extended for the two years after your spouse's death, then you must change your status to correctly reflect your situation.

Well, I hope this helps you in choosing the correct filing status for 2009. If you have any questions or comments, I certainly look forward to hearing them. Happy holidays to all.

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