Much of the U.S. tax code favors those who are married, but if you’re single and qualify as head of household, you may be able to save money on your taxes.
Olena Bilion / 123Rf Photo
Most unmarried taxpayers use the single status when filing their tax returns. Frequently overlooked however, is the more beneficial “head of household” status. To qualify, a single (unmarried) individual must provide over half of the cost of maintaining a household that is the principal place of abode for more than one half of the year for a “qualified” person.
There are numerous instances when the head of household may apply, some obvious and some not so obvious. The important thing is to be aware of this tax-saving filing status and take advantage of it whenever possible.
The following is a rundown of the various conditions that allow a single taxpayer to use the head-of-household status:
Singles Who Have a Qualified Child Living with Them
If you are a single parent, with children living with you and you pay more than half of the cost of maintaining a household that is the principal place of abode for your qualified child or children for more than one half of the year, then you qualify for the head of household status. The child can even be a grandchild, foster child or stepchild. This is true even if you allow the other parent to deduct the dependency exemption for the child.
To be a qualified, the child must meet the following requirements:
— Be under the age of 19 or a full-time student under the age of 24 who is not self-supporting
— Not file a joint return with a spouse unless the return is filed only as a claim for refund (no tax liability)
— Meet a relationship test
— Reside with the taxpayer for more than half of the year
Singles Who Have a Relative Living with Them
The head of household status also applies when you pay more than half of the cost of maintaining a household that is the principal place of abode for a relative, but has one additional requirement. You must be able to claim the tax exemption for the relative, which means that relative must be your dependent. To qualify as a dependent, the relative must meet the following five qualifications:
— Be related to you. This generally includes: brothers and sisters, including half and step; parents; grandparents; nieces and nephews; uncles and aunts and in-laws, including father-; mother-; brothers- and sisters-in-law. Individuals that are not related can still qualify as your dependent, but they must reside in your home for the entire year and cannot qualify you for the head of household status.
— The individual’s gross taxable income must generally be less than the personal exemption amount for the year ($4,050 in 2016).
— Although there are exceptions, the individual generally cannot file a joint return for the year.
— The individual must be a U.S. Citizen or resident of the U.S. There are some exceptions for certain residents of Canada and Mexico.
— You must have provided over half of the individual’s support for the year.
Singles Supporting a Parent
It is not uncommon for people to help support their parents. However, for a parent to qualify you for head of household status, he or she still must be your dependent, as previously discussed, but with one exception: your parent or parents do not need to live with you. Thus, if you provide more than half of the costs of a separate residence for your dependent parent, you qualify for head of household status.
Married but Filing Separately
If you are married but are in the process of becoming single and are filing as a married individual filing separately, you can still qualify for head-of-household status if you lived apart from your spouse for the last six months of the year and paid more than half of the cost of maintaining a household that is the principal place of abode for more than one half of the year of a child, stepchild or eligible foster child, for whom you may claim a dependency exemption.
These are the primary benefits of filing as head of household:
Standard Deduction – The standard deduction for head of household in 2016 is $9,300, which is $3,000 more than the $6,300 allowed for single filers.
Tax Brackets – The tax brackets are lower. For example, the first $13,250 of taxable income is taxed at 10 percent for a taxpayer using the head-of-household status, whereas the 10 percent rate applies only on the first $9,275 when the single status is used.
This illustration below takes in to account the extra $3,000 of standard deductions and the more liberal tax brackets allowed for head of household filing status, and uses comparable taxable incomes ($3,000 less for head of household due to the larger standard deduction) to compare the resulting tax.
Phase-out – Some tax benefits, such as exemptions and itemized deductions, are phased out for higher-income taxpayers. The income level at which the phase-out starts for head-of-household taxpayers is more than $25,000 than that for single taxpayers, which is an additional benefit for taxpayers filing as head of household who are caught in this tax complication.
As you can see, your filing status can make a significant difference in the amount of taxes you pay.
It can get complicated, so to find out what works best in your particular situation, discuss with your account or find an accountant who can help you determine the best solution for you.
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