Tax Advantages of Being Single
NEW YORK ( MainStreet) With three filing statuses that pertain to being single , choosing the right one can help taxpayers make the most of their financial situation.
"Single filers can have an advantage over their married counterparts , because dual income married couples often pay more tax due to the marriage penalty," said Shea Pease, senior manager with the ParenteBeard accounting firm.
A couple suffers a marriage penalty if its partners pay more income tax as a married couple than they would as two single individuals. Conversely, the couple receives a marriage bonus if its partners pay less income tax as a married couple than they would have as two single individuals.
"Tax issues for single women are not unique by gender," said Mark Steber, chief tax officer with Jackson Hewitt, a tax preparation service. "There are differences in filing single versus filing married and even further married filing separate, but many considerations regarding filing status are not gender based."
More than 11 million households are single families, according to the U.S. Census Bureau.
"Single women, single men and taxpayers in general need to watch for tax law changes but even more importantly life changes," Steber told MainStreet. "Life changes may include marriage or divorce but more commonly relocation, moving and taking care of a new dependent."
Having children changes everything in more ways than one.
"If you are single due to a spouse passing, widows who have dependent children are entitled to a special filing status for two subsequent years," Pease told MainStreet.
A single parent can usually claim head of household filing status if he or she is the only adult in the home; provides more than half the cost of rent, utilities and food; and has dependent children.
"You can claim this too if you are supporting an elderly parent even if they don't live with you," said Pease.
Filing under head of household status tends to provide a higher standard deduction and lower taxes than single status.
With divorces nearing 900,000 per year, it's important to know that if a divorce is final before midnight on December 31, 2013, you are considered a single taxpayer in 2014.
"Divorced women are taxed on any alimony they receive but do not pay tax on any child support," Pease said.
One of the most common family structures next to the single parent household is the blended family, which is a combination of two parents with children from previous relationships and/or from the current relationship.
"If you are unmarried but living with a partner, be mindful of the deductions that you can split and the ones that you can't," said Pease. "Take best advantage of each deduction."
When parents remarry, they may file a married filing jointly return with their new spouse, claiming the children from their new relationship and any eligible children from previous relationships.