Your filing status can make a big difference in how much income tax you pay. If you make $40,000 a year, for instance, the amount of tax you will pay depends on which filing status you qualify for. The difference in tax rates are significant and can mean the difference between paying up to 15 percent or 25 percent. Your decision to file single, jointly or as head of household will also affect the size of your standard deduction.
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If you're currently unmarried and don't have children, your filing status has to be single. If you have a child who lives with you, however, and you are responsible for more than half the expenses of maintaining the household, you can file as "head of household" and realize significant tax savings.
If you're married, you and your spouse can choose between filing a joint return or filing separately. You can even file as a qualified widower if you lost your spouse within the past two years and claim the same tax benefits as joint filers. With all else being equal, joint filers and qualified widowers will pay the least amount of tax.
Income tax brackets
As your income goes up, portions of your income are subject to different tax brackets that progressively increase the percentage of tax you pay on that income. If you're single in 2014, for instance, you'd pay 10 percent on your income up to $9,075, then 15 percent on income between that and $36,900. Choosing a different status may change the point at which you move between brackets. A married couple filing jointly in 2014 stays at 10 percent until their joint income reaches $18,150, while for head of household, the cutoff is $12,950.
Claiming standard deductions
The standard deduction is a set amount you can deduct to reduce the amount of your income that can be taxed. It is generally used by people who don’t have enough deductible expenses to make it worth itemizing their deductions.
Although the amounts generally increase each year, in 2014 individuals and married couples filing separately can claim a $6,200 standard deduction, joint filers and qualified widowers can claim an $12,400 deduction and filing as head of household gives you an $9,100 deduction. The standard deduction goes up for filers who are blind or who are 65 or older.
You always have the option to itemize deductions if the total of those deductions is larger than the standard deduction for your filing status. Generally, the payment of mortgage interest, medical bills, state property taxes and charitable contributions you make are eligible to be itemized. Your ability to itemize depends on your filing status since the larger the standard deduction you are eligible to claim, the more expenses you must pay during the year to make it worth itemizing.
When you use TurboTax to prepare your taxes, we will ask simple questions about your situation and will recommend the best filing status for you.