By Amy Higgins
The Cincinnati Enquirer
Which filing status you choose for your income taxes could mean some serious savings on what you might owe, or even a bigger refund.
And it depends on more than just whether you are married. You also need to take into account how much you earn, whether you have children and what credits you might claim.
Still, single people have the easiest decision: Are there dependent children? If so, file a return as head of household or qualifying widow or widower.
The best way for married people to find which filing status is best is to actually work out the joint or separate tax forms and see which is most beneficial.
One key guideline between filing jointly or separately is that couples earning about the same income benefit more from filing separately. Joint returns save taxes for married couples in which one spouse earns all (or almost all) of the taxable income.
A joint return is also required for certain credits and benefits. Married people must file jointly to claim:
A traditional IRA deduction for a nonworking spouse.
A Hope Credit or Lifetime Learning Credit.
A dependent care credit or earned income credit, unless you lived apart for the last six months of the year.
If you do decide to file separately, be aware that you and your spouse must either both itemize deductions or both take the standard deduction.
Still, filing separately might save more money if it allows you to claim more deductions, such as medical expenses or casualty losses, because your eligibility for those deductions will be figured on the lower adjusted gross income.
Couples with substantially equal incomes filing jointly are also still subject to a "marriage penalty," in that the tax owed exceeds what it would be if they were not married and filing as single people.
On the other hand, if one spouse earns almost all the income and the couple files jointly, there is a "marriage bonus." Less tax is owed on that joint income than if the breadwinner paid tax on it as a single person.
President Bush's 2001 tax cuts provide partial relief for the marriage penalty for joint filers - but not until 2005, when the standard deduction will start gradually increasing on joint returns. Tax brackets will also gradually start expanding until 2009, when they will equal double that of single filers.
E-mail ahiggins@enquirer.com
