RTS #023 “What filing status can I choose?” is the wrong question
We’ve recently received a lot of questions from Advisors and taxpayers both about “choosing” tax filing statuses. This is the wrong framing in almost every case, but there are actually very few times you have a choice as a taxpayer. The reality is that it’s important to understand what may be available to you, but what you actually claim is based on your facts and circumstances, not picking a filing status from a menu.
The most commonly used filing statuses are married filing jointly (MFJ) and single. Which of these you “choose,” or more accurately, which one you are permitted to use when you file, is based on your legal marital status on December 31st of the tax year. If you are not legally married on December 31st, you cannot “choose” MFJ (the one exception is for a widow(er) in the year their spouse passes away). Conversely, if you are legally married on December 31st (even if you are separated, in the middle of divorce proceedings, or planning to get divorced in the near future), you cannot “choose” to file single.
In general, MFJ is the most advantageous tax filing status, but we frequently get questions about what other options are available, which speaks to how desperately people want to find ways to save on taxes. These questions aren’t coming from a well-researched position; it’s an attempt to make sure that every possibility has been considered. Even if the questions feel silly or obvious, take the time to educate your clients and reinforce that you are looking for every opportunity to help them save on taxes and will continue to revisit tax planning every year on their behalf.
For couples that are legally married on December 31st, the one choice available to them is between MFJ and married filing separately (MFS). The vast majority of the time, MFJ is going to be more beneficial from a tax standpoint. That’s simply the way the tax code is written. It’s not a matter of splitting the benefits in half between the two spouses; there are rules that dramatically shift in the negative when you elect MFS (the threshold for making Roth contributions is one of them). The two situations where MFS might make sense are for couples where one or both spouses are eligible for student loan forgiveness under a public service loan forgiveness program and for couples with disproportionate legal or tax issues (which can include couples going through a divorce).
The other less commonly used filing status is qualified surviving spouse (which can be used by a widow(er) for up to two years after the death of their spouse if they have qualified dependents (in this case, the dependent has to be a child, stepchild or adopted child) and head of household, which can be used by a single filer who has one or more qualified dependents. Qualifying surviving spouse gets the same benefits as MFJ, and head of household falls between MFJ and single as far as tax benefits.
What can you do about it?
Filing status needs to be on your tax return review checklist, and life events that might impact filing status (marriage, divorce, death of a spouse, change in dependents, etc.) need to be on the list of questions you are asking your clients each year to make sure you can identify when their tax situation changes. Yes, their tax professional should be doing this, but you may have DIY clients, and even the ones who rely on a tax professional will appreciate the extra set of eyes (and unfortunately, experience tells us their tax professional may not always catch these changes)
Happy Tax Planning!