Your submitting standing is the spine of your tax return, and checking the flawed field could be expensive. But many filers nonetheless confuse single and head of family, monetary specialists say.
“Most individuals are usually not totally conscious of the variations,” stated Rose Swanger, an authorized monetary planner and enrolled agent with Advise Finance in Knoxville, Tennessee.
You possibly can select the one submitting standing should you’re not married. However should you’re financially supporting a dependent, you might qualify for head of household with vital tax advantages.
Advantages of head of family
For divorced mother and father, it is at all times higher to file as head of family, stated Linda Farinola, a CFP and associate at Princeton Monetary Group in Plainsboro, New Jersey.
One purpose is there are wider tax brackets, that means it takes extra revenue to succeed in every charge. For instance, single filers could attain the highest of the 12% bracket with $40,525, whereas heads of family could have as much as $54,200.
And with a bigger normal deduction — $18,800 in comparison with $12,550 for single filers in 2021— your taxable revenue could also be decrease.
You might also qualify for different write-offs sooner, such because the third stimulus payment, the improved child tax credit or boosted earned income tax credit for 2021.
“There are a slew of tax advantages that develop into a bargaining chip in divorce negotiations,” Swanger stated.
Qualifying for head of family
Whereas there are clear advantages for heads of family, there are strict eligibility necessities. “That is one space the place the IRS is scrupulous,” stated Swanger.
To qualify for head of family, you have to be single or residing individually out of your partner for no less than the final six months of the yr. A short lived absence like college or work would not rely.
You could pay for greater than half of the price of sustaining a house, comparable to lease, mortgage curiosity, property taxes, utilities, repairs and meals at dwelling.
And you could have a “qualifying particular person,” comparable to a toddler, grandchild or different kinfolk, residing with you for greater than half of the yr. A dependent dad or mum would not must reside in your house should you cowl greater than half of their value of residing.
Each mother and father could qualify for head of family with two or extra youngsters, so long as one youngster lives with every dad or mum for greater than half of the yr, offering greater than half the monetary assist, defined Sallie Mullins Thompson, a Washington, D.C.-based CFP and CPA on the agency along with her title.
Nonetheless, if there’s just one youngster, mother and father could alternate claiming the pinnacle of family submitting standing every year.
“Should you plan forward, each mother and father can lower your expenses and keep away from errors,” Swanger added.