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Tax Strategies & Credits

Single? You May Have Tax Saving Options Come Tax Time

by
Gordon W. McNamee
on
10/13/2016
Single? You May Have Tax Saving Options Come Tax Time

If you are not married, there’s a good chance that you have been filing your tax returns using the status of single – and that may make sense and be appropriate. But there are certain unmarried individuals who are eligible to use the head of household status, which may be far more beneficial. In order to qualify to use this status, you must be single/unmarried and also be the person who is paying for more than 50% of the maintenance for a qualified person who lives there more than 50% of the time.

The defining characteristics of this status may seem vague or unclear at first, but if you look at the various categories that a head of household can fall into, there’s a good chance that you meet the requirements. If you do, then it is likely in your best interest to switch over to this tax filing status, as it tends to offer significant tax savings.  Here are the different categories for filing for head of household:

  • Singles Who Have a Qualifying Child Living With ThemIf you are unmarried, whether due to always having been single or as a result of a separation or divorce, and you have a child or children living with you, then you may qualify for head of household filing status. The requirements for this status include providing more than half the cost of maintaining the household that the child or children live in for more than 50% of the year. This tax status is not restricted to your own children: you can qualify if the child who is living with you is a foster child, a stepchild, or a grandchild. Allowing another adult/parent to claim the child as a dependent does not negate your ability to use this tax status.There are certain requirements that must be met for the child who is living with you to be considered qualified. These include:
  • They must be under the age of 19, or if they are under the age of 24, not self-supporting and a full-time student
  • They must be able to meet a relationship test
  • They must live in the taxpayer’s household for more than 50% of the year
  • They must not file a joint return with a spouse unless it is to claim a refund. The child cannot have a tax liability.
  • Singles Who Have a Relative Living with ThemIf you are unmarried, whether due to always having been single or as a result of a separation or divorce, and you have a relative for whom you claim a tax exemption living with you, then you qualify for head of household filing status. This category of eligibility specifically requires that you have identified them as a dependent and are claiming a deduction for them.There are certain requirements that must be met for a relative living in your home to be claimed as a dependent. These include:
  • Their gross taxable income has to be less that that tax year’s personal exemption. For tax year 2016 that amount is $4,050.
  • In most cases (though there are exceptions) they are not able to file a joint tax return for the year that they are being claimed as a dependent by the head of household.
  • The taxpayer claiming head of household status must provide more than 50% of the person’s support for the tax year.
  • The person must be either a legal resident of the U.S. or a U.S. citizen. There are some circumstances in which residents of Canada or Mexico may qualify as well.
  • The dependent must be a relative that falls into one of these categories: brother or sister (including half and step), grandparent, parent, nephew or niece, aunt or uncle, in-laws including mother- or father-in-law or sister- or brother-in-law.
  • People who are not related to you and who live in your home can also qualify as a dependent, but in order for you to qualify for the tax status they must meet all of the requirements listed above and live in your home all year.
  • Singles Who Are Supporting a Parent Who is Not Living with ThemIn addition to an unmarried taxpayer being able to qualify as head of household if a parent is living with them for more than 50% of the year, the tax status is also available for those who are supporting a parent. To be eligible your parent must be listed on your tax return as a dependent in the same way as if they are living with you. As long as you are providing more than half of the cost to maintain them in a separate residence, you are able to file for head of household status.
  • People Who Are Married but Filing SeparatelyMarried couples are generally urged not to file their taxes as married but filing separately because it subjects them to a number of tax penalties and higher filing thresholds, but if you are in the midst of a divorce the head of household filing status would apply. The requirement for eligibility is that you must have lived apart from one another for no less than the last six months of the tax year and that you provided over 50% of the costs needed to maintain your household. The filing status is only available to people who are married if they are also housing a child, stepchild or eligible foster child for whom you may claim the dependency exemption more than 50% of the year. 

As stated earlier, those who use the head of household filing status have the benefit of a number of significant tax advantages. These include being able to use a higher standard deduction and the ability to use lower tax brackets. For tax year 2016, people who file as head of household are able to use a standard deduction of $9,300 rather than the $6,300 offered to those filing as single. As for the tax brackets, a person who is filing using the single tax status pay the low 10% tax rate on the first $9,275 earned, while head of household filers pay that rate on the first $13,250 of income. The grid shown here shows the very impact that filing as head of household vs filing single can have on the amount of tax that you are required to pay.

Additionally, those who are filing their taxes using the head of household filing status get the benefit of much higher phase out levels than is true of those using the single taxpayer status. In some cases, the phase out is as much as $25,000 higher.

The difference between filing as head of household and filing as single is substantial, and well worth your while to investigate. If you have any questions about your ability or whether doing so would work to your benefit, call our office today.

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Gordon W. McNamee

Gordon W. McNamee

Gordon W. McNamee is a Certified Public Accountant (CPA) based in Rancho Cucamonga, CA. Gordon W. McNamee can assist you with your tax return preparation, payroll, accounting and tax planning needs. <br /> <br /> 2021 is Gordon W. McNamee, CPAs 38th year in the profession. As as a former IRS agent (1984 through 1987), Gordon has been in public accounting since 1987. Gordon specializes in individual, corporate, HOA, trust, estate and payroll taxes. He also prepares financial statements and provides accounting & bookkeeping services. He enjoys making his clients feel at ease while providing a personalized professional service.

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