Filing Status for Income Taxes & Wealth Building

Learn about the various tax filing options so that you can build wealth more efficiently….

Over the years, many have posed questions and concerns about their filing status and who qualifies as a dependent. In this discussion TheWealthIncreaser.com will attempt to clear up some of the misunderstanding that you and others may have.

Even though filing and dependent statuses can get highly technical for some–it is fairly straight-forward for most!

As the final day of the “2024 tax season” comes to an end, you as a taxpayer need to know that your filing status in future years will be based on your circumstances. According to the IRS, there are five filing statuses that include:

Single

Head Of Household

Married Filing Jointly

Married Filing Separately

Qualifying Widow(er)

Single

If you are single and have no dependents you would file as single. It is generally one of the simplest returns to file as you are only including your income, adjustments, deductions and credits that apply to you only, however there are exceptions as you might expect as all tax filing situations are unique.

If you are single and have a child that you provide majority support for, you can generally claim the child–(assuming the other parent isn’t qualified to do so) and that could put you in position to file as HOH and that could lead to you claiming a higher standard deduction, qualify you for tax credits such as the child tax credit, earned income credit, and possibly other credits.

2024 Single filing thresholds:

Under 65 $14,600
65 or older	$16,550

If you are also a homeowner, you may qualify for additional tax savings as you may be able to avoid utilizing the standard deduction and claim itemized deductions instead!

Head Of Household

Head of household is generally a more advantageous filing status for those who qualify, compared to other filing statuses with the exception of MFJ and possibly QW.

If you have qualifying dependents, you are eligible to file as HOH, generally. If your income thresholds are less than the numbers below, you may not have to file, however if you want a refund of tax withholding and the benefits of credits and deductions that may allow you to get a refund–you want to take advantage of that opportunity.

2024 HOH filing thresholds:

under 65	$21,900
65 or older	$23,850

If you are also a homeowner, you may qualify for additional tax savings as you may be able to avoid utilizing the standard deduction and claim itemized deductions instead!

Married Filing Jointly

Married couples often find it more advantageous to file jointly, and filing is required if the following income thresholds are met:

2024 MFJ filing thresholds:

under 65 (both spouses)	$29,200
65 or older (one spouse)	$30,750
65 or older (both spouses)	$32,300

If you are married and also a homeowner, you may qualify for additional tax savings!

Married Filing Separately

Married Filing Separately is often used by those who are separated in marriage. In other cases happily married couples seeking relief from taxes due to innocent spouse or injured spouse claims of one taxpayer can often file MFS and that can often be a wise move, as it can lead to less taxes being paid by one spouse, and in many cases lowers the overall taxes that they would pay if they were to file as MFJ.

The IRS considers a couple married for tax filing purposes until they get a final decree of divorce, or a separate maintenance agreement is in effect.

The filing threshold is as follows for 2024 MFS filers:

any age

$5–yes $5!

Qualifying Widow(er)

2024 QW filing thresholds:

under 65	$29,200
65 or older	$30,750

The term qualified widow or widower refers to a tax filing status that allows a surviving spouse to use the married filing jointly tax rates on an individual return.

The provision is good for up to two years following the death of one spouse. The taxpayer must remain unmarried for at least two years following the death of their spouse in order to qualify for this status.

Form 1310 may also need to be filed so that you can stay in good standing with the IRS!

MFJ vs MFS

Many married tax filers want to know whether it is more advantageous to file separately. You can determine which way is more advantageous by running the numbers (or have your tax professional do so).

That’s because there are more tax deductions and credits married couples filing jointly are eligible for. For example, the Earned Income Tax Credit is generally only available to married couples who file jointly. The EITC enables low-income households to deduct as much as $7,430 off their taxes if they have three or more children.

Similarly, the Adoption Credit and Child and Dependent Care Tax Credit are only available for married couples filing jointly. These and other credits that you may be eligible for can directly lower your tax bill and result in bigger refunds.

Also if you don’t owe any money to the IRS but your spouse does, by filing together your tax refund could be applied toward the tab that your spouse racked up with the IRS.

The 7.5% medical deduction that you can claim on schedule A may be available to one income, but with two incomes you wouldn’t qualify based on the 7.5% income threshold.

It is Important that you realize that filing jointly means you and your spouse are on the hook for the money you and your spouse owe to the IRS prior to your marriage.

As far as tax return retention, you want to keep your tax return for at a minimum of 3 years, and if you are a homeowner you want to keep all of your tax returns permanently!

1098-E student loan interest deduction for those who have student loans are available whether you itemize or claim the standard deduction.

Dependents

Many want to know who qualifies as a dependent and who they can legally claim on their current year tax return. It is a common question that unsurprisingly deserves a common answer.

Who qualifies as a dependent, depends (no pun intended)?

Generally if your income is $5,050 or less you may be able to be claimed by another as a dependent on their return.

However, there are other situations when filing is required that can get quite technical. Additionally in some cases if you are claimed as a dependent by another, you can still file your own tax return utilizing the standard deduction only, as your dependency exemption has already been used up.

General rules for dependents

These rules generally apply to all dependents:

A dependent must be a U.S. citizen, resident alien or national or a resident of Canada or Mexico

A person can’t be claimed as a dependent on more than one tax return, with rare exceptions

A dependent can’t claim a dependent on their own tax return

You can’t claim your spouse as a dependent if you file jointly

You can’t claim yourself as a dependent

A dependent must be a qualifying child or qualifying relative

Qualifying child

To qualify as a dependent, a child must also pass these tests:

Relationship: Be your son, daughter, stepchild, eligible foster child, brother, sister, half-sister or -brother, stepbrother, stepsister, adopted child or the child of one of these
Age: Be under age 19 or under 24 if a full-time student, or any age if permanently and totally disabled
Residency: Live with you for more than half the year, with some exceptions
Support: Get more than half their financial support from you
Joint return: Not file as married filing jointly unless only to claim a refund of taxes paid or withheld

See the full rules for a qualifying child

Qualifying relative

A qualifying relative must meet general rules for dependents and pass these tests:

Not a qualifying child: Isn’t your qualifying child or the qualifying child of any other taxpayer
Member of household or relationship: Lives with you all year as a member of your household or is a specific type of relative
Gross income: Has gross income under $5,050
Support: Gets more than half their financial support from you

See the full rules for a qualifying relative

When can I claim a dependent?

You can currently claim dependents only for certain tax credits and deductions. Each credit or deduction has its own requirements.

What if I am a dependent on someone else’s return?

You can be claimed as a dependent and still need to file your own tax return. Your filing requirement depends on your income, marital status and other criteria. Learn more by visiting more details on filing requirements for dependents at IRS.gov.

See if you need to file: answer these questions to find out…

As mentioned earlier in this post, you may want to file (federal and state returns) anyway so you can get any federal and state income tax your employer withheld back as a refund or claim certain refundable tax credits.

Dependents, Standard Deduction, and Filing Information, Publication 501

Your Federal Income Tax, Publication 17, a “must read” for those who sincerely desire to succeed…

What Triggers an Audit?

To round out this discussion on filing status, audit triggers will be presented to help you gain a better understanding of filing requirements and how to avoid unnecessary IRS scrutiny so that you can achieve more in the coming tax seasons. Among other tax concerns, you want to be particularly aware of common audit triggers.

Common Audit Triggers include the following:

Under-reporting taxable income–retirement, side jobs, 401k loan non-repayment, 1099 or other income not being reported can all lead to under-reporting of income, which the IRS frowns upon

Claiming large or unusual deductions–business expenses, charitable contributions and the like

Significant changes from year to year–if you have major changes from your previous tax return, that may cause alarm at the IRS

Independent contractor or self-employment income not reported–venmo, air b-n-b, lyft, UBER, Turo, Grubhub, Doordash, Roadie and other new economy ways of making income are normally taxable, and the IRS normally receives 1099-k or other 1099s from the platforms or app providers

Claiming credits that they don’t qualify for–i.e. the EIC, Dependent Credit, CTC etcetera

Keep in mind the IRS has matching computer system technology that allows them to cross-reference and easily detect many discrepancies in tax reporting. Therefore, you want to keep good records and stay abreast of reporting requirements.

Additionally, you want to file your tax return annually, and if you need additional time you want to file form 4868, as that will give you an additional six months to get your finances and payment options in place.

Likewise, you want to timely file your tax return if you are due a refund as there are limitations in place that would disallow your refund if not done within a 3-year window from the filing deadline–including extensions.

If you have “security concerns” about your taxes, you want to give an IP PIN real consideration as an Individual Protection Personal Identification Number can provide added security by providing you a PIN (Personal Identification Number) on an annual basis that requires two-factor verification–thus decreasing the likelihood of fraud occurring against you and your family.

Conclusion

Your filing status and determining who is a dependent is generally easy to determine, however on occasion, determining the best filing status or who qualifies as a dependent can be difficult and may require analysis, including doing pro-forma projections using varying filing statuses that you may qualify for.

Even on occasions when you are not required to file, you may want to do so if you had taxes withheld as you may be able to get some or all of the withholding back along with additional amounts–depending on your circumstances.

Additionally, you may qualify for deductions and refundable credits, therefore by not filing you could be leaving money on the table. You also want to take your state and local taxes into considerations when deciding your filing status, as even if you qualify at the Federal level to not have to file, you may be required to do so at the State or Local level.

In general, your filing status should be easy to decipher, however who qualifies as a dependent may need to be given deeper analysis in some situations!

And with filing status and dependents, and many other areas of taxation, you want to be aware of the everchanging nature of taxation.

You want to know proactively that credits, deductions, mileage rates and adjustment ceilings or deductible contribution limits such as on IRAs–change from year to year (usually of an upward nature), therefore you want to be highly conscious and aware of this important fact–as you want to see what numbers are in effect for the current tax year or the year in question (the tax year that you are filing) so that you can improve your analysis and decision making and build wealth more efficiently.

If you have concerns, you want to do additional research and/or contact a highly competent tax professional to assist you in the process. Always remember that a marriage, birth, death, divorce, adoption or the claiming of a parent or other qualifying dependent(s) that occurs by December 31st of the tax year in question has the potential to change your filing status for the current tax year or future tax year(s).

In the case of death during the tax year by the primary taxpayer, an executor or personal representative may have to file final return of a decedent, as tax obligations are “not” relieved–even in death. If not done appropriately you as the executor or personal representative can be held personally liable.

After the transition of the primary taxpayer, MFJ tax rates are still an option when filing and QW can be done in future years. Therefore, it is important that you look at your circumstances in a wholesome way and determine the best way to file.

As the primary taxpayer, you don’t want to pass on to your surviving spouse debt that you incurred while you were alive if you can avoid it. With married couples, both parties are singularly or jointly obligated. Tax obligations of your spouse can be paid through the estate or through you, therefore your filing status election and estate planning could be key to you saving money and building wealth more efficiently.

Always realize that once your estate is opened up after your transition, the IRS generally gets paid first!

Isn’t it time you get a real GRIP on your taxes and finances so that you can ascend higher and do more of what you sincerely desire.

Even with all of the economic disarray–now is the time that you put your filing status concerns at bay!

Even though the current economy is in upheaval, you don’t have to pursue your goals in error because of the actions of others who are evil.

All the best to your filing status success as you work diligently during these tumultuous times to give it your absolute best…

Tax Archive—TheWealthIncreaser.com

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