Choose the Correct Filing Status

Be sure to use the correct filing status when you file your income tax return; choosing the wrong filing status can cost you. If you fail to utilize a filing status that can lower your tax bill, you may end up paying a lot more than your fair share of the tax burden. If you intentionally or mistakenly use a beneficial filing status that you don't qualify for, an audit by the IRS can ensure that you will be assessed penalties and interest fees, in addition to increasing your chances for a future audit. It is possible to qualify for more than one filing status; choose the one that benefits you most.

Single
This filing status is for people who have never been married, or who are divorced or legally separated under a separate maintenance decree by December 31st of the tax year. Unmarried persons who do not qualify for another filing status must file single. Also, Federal tax law only recognizes marriages between a man and woman, so even if a same-sex marriage has been allowed by state law, the couple must file individual returns as single.

Head of Household

This filing status is generally for taxpayers who meet all of the following criteria:

• You are unmarried. This includes never-married or divorced.
• You have a qualifying person you can claim as a dependant.
• You paid for more than half the costs of maintaining a home for the qualifying person.
• The qualifying person lived with you for more than half the year.

The typical person who can file as head of household is a single parent who's children live with them, though thereare exceptions. A person who pays over half the cost to maintain a home, including a rest home or nursing home, for their dependant parents may be eligible to file as head of household.

A married person may file as head of household only if they meet the criteria above and their spouse did not live in the household for the last half of the year; the law is written this way to help parents who continue to support their children after being abandoned by a spouse.

Married Filing Jointly
If you are married by December 31st of the tax year, the IRS considers you married for that entire year. This is normally the most beneficial filing status for married couples. A married couple can file jointly even if only one earns income.

Filing jointly makes both spouses responsible for the accuracy of the tax return, and makes them both responsible for any amount of tax owed. Even if one spouse has no income, they can still be held responsible for taxes due to the other's income. If one spouse dies, the surviving spouse may still use the married filing jointly status for the tax year in which the spouse dies.

Married Filing Separately
This filing status is not normally beneficially to a typical married couple; couples who file separately are not allowed to take many of the credits that joint filers are able to take. And, if one spouse itemizes deductions, the other must also itemize their deductions.

Filing separately may benefit a couple if they have a high combined income, but one spouse has a low income with high itemizable deductions, like a large medical bill that year. Please note that if you have children, only one spouse may claim each child as a deduction.

It may be safer to file separate returns if you are estranged from your spouse, as you will be liable for any inaccuracies, misrepresentations, fraud, or underpayments and penalties if you file a joint return.

Filing separately creates some complications in a community property state, as all income brought in by each spouse is generally looked at as owned 50/50, so consult a tax specialist if you live in one of those states.

Qualifying Widow or Widower with Dependant Child

This filing status may be used for two years after the year of the spouse's death. The criteria that must be met:

• You must have been eligible to file a joint return the year of the spouse's death, that is, legally married. You do not have to actually file a joint return, you just have to be eligible to do so.
• You did not remarry before the end of the tax year.
• You have a dependant child, step-child, or adopted child.
• You paid more than half the costs of maintaining a home for you and your child, and that child lived with you for all of the year.

For example, if the filer's spouse died in 2007, then the surviving spouse may file as married filing jointly for the 2007 tax year. In 2008 and 2009, the surviving spouse may file as qualifying widow(er) with dependant child, as long as they meet all criteria for each year. In 2010, they would file head of household, or single if their child is no longer dependant on them at that time.

Source: www.IRS.gov