Wrong Filing Status
What happens when you file your tax return under the wrong status? Well, it would certainly have broad ranging effects. For example, it can affect the tax benefits you receive, the amount of your standard deduction and the amount of taxes you pay. It may even impact whether you must file a federal income tax return in the first place. The IRS views a wrongly filed status very seriously, so you should be careful to ensure your filing status is correct.
Basically, there are 5 categories of statuses namely Single, Married filing Separately, Married filing Jointly, Head of Household or Qualifying Widow (or widower) with Dependent Child. In my experience, the one that is subject to the most abuse is Head of Household. The penalty for filing under a wrong status is one half of one percent every month that the tax is underpaid, up to a total of 25% of the additional taxes due. Interest is compounded daily and the interest rate is changed quarterly, but is generally running around 4 to 5% per year.
So how can you make sure you always file under the correct status? Here are the guidelines given by the IRS:
1. Marital Status. Should you file as Married or Single? For most people, this would be quite straightforward but to some others, it might not be. For instance, if you are separated from your spouse and have begun divorce proceedings, you may be tempted to file as a Single taxpayer but you are still legally married until your divorce is official. Generally, you determine your marital status for the entire year based on your status on the last day of the year.
2. Single Filing Status. As I mentioned above, the Single filing status would apply if you are not married, divorced or legally separated according to state law.
3. Married Filing Jointly. A married couple may file a return together using the Married Filing Jointly status. And if your spouse passed away last year, you usually may still file a joint return for that year.
4. Married Filing Separately. If you and your spouse decide to file their returns separately, each person’s filing status would be classified as Married Filing Separately.
5. Head of Household. The Head of Household status generally applies if you are not married and have paid more than half the cost of maintaining a home for yourself and a qualifying person.
6. Qualifying Widow(er) with Dependent Child. This status may apply if your spouse died during 2010 or 2011, you have a dependent child and you meet certain other conditions.
7. Finally, if more than one filing status fits you, you should choose the one that allows you to pay the lowest taxes.