Why is it Good to Be Single When You File Taxes?
Being married has been known to provide a wide array of advantages. However, being single also has its advantages as well. In addition to having all the freedom you want, you can also spend your time and your money the way you want. This can be very beneficial. Likewise, there are also some well-known advantages for being single when it comes to filing your taxes too. In addition to getting to keep the full refund for yourself, there are other reasons why it’s advantageous to be single during tax time.
Advantages to Being Single When You File Taxes
One of the major benefits of being single is not having to deal with all the different ways that being married impacts your taxes. There’s a lot that happens when you say I do that you absolutely don’t have to worry about as a single person. For example, once you become married, you will need to change your name, update your W-4 form, change your filing status and possibly your withholding allowances, determine whether you want to file taxes as married filing jointly or married filing separately. When you file your taxes as a single tax filer, these are areas that typically are of no concern to you.
Here are some other benefits:
No Sudden Tax Surprises
When having your federal tax return prepared, you may have to make some withholding adjustments if you got married during the prior tax year. A lot of people tend to forget to carefully go over their tax withholdings at their jobs to ensure they are reporting the proper withholding allowances on their W 4. Adjustments need to take place whenever there’s a major life change. Particularly when a couple gets married. And if your spouse already has children it can be even trickier - especially when it comes to taxes. When you are single, however, there will likely not be any tax surprises when you file taxes.
You Won’t Have to Inherit Someone Else’s Tax Debt
There are several things that take place when you get married and become one union. One of them is assuming someone else’s tax debt and other financial obligations. So if your new spouse happens to owe back taxes, in the eyes of the IRS, you will also be responsible for the tax debt if you file jointly. To that end, even though the IRS has 10 years to collect outstanding taxes, it’s important to realize that the IRS will continue their collection efforts during the time allowed by law.
Single Tax Filers Have the Option to File as Head of Household
If you file taxes as a single tax filer, you also have the option to file as the head of household. However, you must meet certain requirements to take advantage of the extra tax benefits.
Qualifications to File as Head of Household
Before you can take advantage of the head of household filing status you must:
Be unmarried on the last day of the tax year
Have paid over half the cost associated with keeping up a home for the current tax year
Have had a qualifying dependent living with you in your home for over half of the tax year. Unless of course there was a temporary absence such as to service in the military or to attend school
How Filing as Head of Household Impact Your Taxes
If you believe filing as the head of household is more suitable for you as a single individual, here’s how you can benefit when you file taxes.
Standard Deduction
The biggest tax advantage for claiming the head of household status is the standard tax deduction. It is $12,950. for single tax filers, however, it’s $19,400 for singles who file taxes as head of household for the 2023 tax year.
Lower Tax Rate
If you are single and qualify as head of household, you will also have the benefit of having a lower tax rate. This tax rate is the percentage that the taxes are paid based on each dollar amount of income generated during the tax year.
Itemize or Take the Standard Tax Deduction
Unlike a married couple, a single tax filer has the option to itemize their deductions or take the standard deduction. A married couple whose filing status is married filing separate on the other hand must both either itemize their deductions or they both must take the standard deduction.
If you are a married couple filing separate tax returns, it may be more advantageous for one spouse to itemize their deductions, whereas the other spouse may find it more beneficial to use the standard deduction. In cases such as this, both parties will have to agree on the best way to file.
When a married couple files separately, they also lose additional tax breaks and other deductions. For example, some restrictions include:
Student loan interest deductions
Tax-free exclusion of the U.S. bond interest
Earned Income Credit
Child and dependent care tax credit
Roth IRA contributions
Traditional IRA deductions
Net capital loss deductions and more
These restrictions are not the same for the single tax filer. Although, when itemizing their deductions there are some other income limitations based on the adjusted gross income (AGI). For example, a single filer who itemizes their deductions must meet certain thresholds. What this means is that during the tax year when there is a 10% threshold, a single filer can deduct the part of their itemized deductions that exceed 10% of their adjusted gross income. So if your adjusted gross income happens to be $55,000 and you had $7,500 in qualified medical expenses, you would only be limited to deduct 10% of the amount that exceeds your AGI. So according, that would be $2,000. This is the amount that exceeds $5500, which is 10% of the adjusted gross income.
This is only a sample of the income limitations that’s associated with itemizing your deductions as a single tax filer. There are several more.
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Qualify for Educational Tax Credits
Another benefit that singles can benefit from when they file taxes is education tax benefits. They may not qualify for this tax benefit if they are married. Here’s what we mean, tax credits such as the American Opportunity Tax Credit and the Lifetime Learning Credit both have eligibility requirements for each student based on income limitations. However, if you and your spouse file jointly, there may be a spike in your income, which may disqualify you. Here’s how it works.
The American Tax Credit
The American Opportunity Tax Credit allows a credit of up to $2500 per student that can be applied towards the taxes owed for qualifying students. A student is eligible for the tax credit if they paid qualified college expenses during the respective tax year.
The American Opportunity Tax Credit is only available for those that have a Modified Adjusted Gross Income of at least $80,000 or less. However, if they’re married and file jointly, their Modified Adjusted Gross Income must be $160,000 or less.
You receive a reduced amount of the credit if your MAGI is over $80,000 but less than $90,000 (over $160,000 but less than $180,000 for married filing jointly).
You cannot claim the credit if your MAGI is over $90,000 ($180,000 for joint filers).
As a single individual who file taxes, there is a greater likelihood of you qualifying for this tax credit.
The Lifetime Learning Credit
The full Lifetime Learning Credit is easier to qualify for. Individuals who file taxes that paid for qualified college expenses have MAGI limitation between $80,000 and $90,000. This limitation is between $160,000 and $180,000 if you file a joint return.
Make Your Own Tax Decisions
The majority of the decisions that we make on a daily basis has an impact on a wide variety of taxes. From personal taxes to sales taxes to corporate taxes to excise taxes - each of these taxes has an impact on our lives differently.
It’s important to know as much as possible about all the variety of taxes that impact your life. The more you know the better decisions you can make about the impact and tax consequences of your choices. When you make decisions as a married couple the focus is more on the couple as opposed to an individual. But as an individual, you can make decisions as you wish based on the best possible outcome for you. When you file taxes as a single person, you get to decide on a wide variety of issues during the tax year without being concerned about how it will impact your spouse and their tax situation.
Maximize Your Tax Refund
Making the right decisions should also result in you getting the maximum refund possible when you file taxes. For example, avoiding the early withdrawal from your 401(k) can increase your chances of getting a higher tax refund. Learning more about the different tax advantages for various retirement accounts is also beneficial for maximizing your tax refund.
In addition to that, becoming fully aware of all of the different tax deductions that you can write off will also help maximize your tax refund. For example, if you generate additional income from a side gig, you can also write off the cost and expenses associated with generating that extra income. Scheduling a meeting to talk with your tax preparer or accountant can help you develop some customized tax strategies that can help you maximize your taxes.
Collect, Organize and Submit Your Own Tax Documents
It’s hard enough to get all of your documents organized to have your taxes prepared on time, but it can become even more complex when you’re married. Having your taxes prepared properly requires a lot of paperwork that needs to be collected, maintained and organized. As a single person, it’s easier to both collect your tax documents and keep them organized. This makes it a lot easier to be all ready for tax day.
Types of Tax Documents to Be Collected
When preparing to have your taxes done, there is a wide variety of tax documents that need to come from different places. Some official tax documents must be maintained and submitted from various organizations, such as
Financial institutions
Educational institutions
Religious institutions
Government agencies
Business organizations and so forth
There are also other documents that you personally must collect, organize and maintain on your own. Those additional documents that are needed for you to file your taxes include:
Taxable and non-taxable income. You will need to keep track of taxable and non-taxable income, such as
o Income reported on W2
o Income reported on 1099’s
o Dividend payments
o Interest earned and so forth
Household receipts associated with running your home if you are a homeowner. Those typically include receipts for
o Maintenance and repairs
o Utilities
o Home improvements
Business receipts and documents associated with running a small business if you happen to run your own business or generate a side income from your home. Those documents generally include receipts for:
o Office supplies
o Capital expenditures (furniture and equipment)
o Business-related travel expenses
o Rental expenses
o Vehicle expenses
o Payments for professional fees
o Interest, credit card and bank fees
o Earned Income
o Cost of sales and more
· Donations made to nonprofit organizations. Most nonprofit organizations will provide you with a year-end contribution statement listing all the donations that were made during the year. However, there are some that do not. In cases such as those, you will need to keep track of these items yourself. Such as donations made to
o Goodwill
o Salvation Army, and so forth
Additionally, if you generate an additional source of income, you will also need to make note of any estimated taxes that have been paid throughout the year. This includes self-employment taxes and income taxes.
Unearned Income
In addition to the information provided above, if you made contributions to an IRA or an investment account and received a gain, interest, dividends, gifts, awards, gambling winnings or if you received Social Security or Disability Benefits, Unemployment or Capital Gains from the sale of an asset, you will also need to maintain and keep track of this information as well.
It’s a lot better to collect this information as you obtain it. You can easily do this by creating either a spreadsheet or an accounting file so that your records are up-to-date when the end of the year rolls around.
If you were married, you'd have to combine your efforts with your spouse and collect double the amount of information that is needed to have your tax returns prepared.
Often times, a couple's tax documents come from different places. Couples also tend to keep their individual documents filed separately and they may not always be readily available when needed. Being single will eliminate the additional delays associated with gathering documents from both parties. It will also reduce the frustration from being unorganized when trying to meet a deadline.
Submitting Your Own Tax Documents
Gathering organizing and maintaining tax documents throughout the year and having them ready for the tax preparer is better streamlined when this process takes place from one single individual as opposed to a couple.
Deciding on how to submit these documents is also better streamlined when only one person is involved. For example, there are a wide variety of electronic platforms that allow you to upload and submit your tax documents electronically. Again, it's much better to do when all of the information is coming from one source as opposed to multiple sources.
Answering Last Minute Questions and Submitting Additional Supporting Documentation
During tax time as the tax preparer goes through your federal tax return, he or she may determine that there are some other deductions that you could take advantage of. However, in order to do so, it may require additional supporting documentation or answers to additional questions. Although this process can further reduce your tax liability, it can also create setbacks for couples as it likely requires more research. This could create more delays and frustration. Why? Because one spouse may be more concerned about getting the biggest tax refund possible, whereas the other is more concerned about getting the tax returns completed. In either case, it can slow down the process, create frustration, and even become overwhelming.
If you’re filing your taxes as a single person, however, you can probably put your hands on any additional documents needed a lot faster than you could as a couple. To that end, you could also easily provide answers that the tax preparer without first having to confirm the additional information with your spouse.
You Can File Your Taxes Early
Some people are eager to file taxes as early as possible, whereas others merely want to meet the deadline. As a single person, the ball is in your court. You can control when you file your taxes without being concerned about whether your spouse is ready and prepared to file.
To Sum Up
Filing your taxes as a single person can be very liberating as you are able to make decisions about all aspects of your taxes yourself. Taking advantage of various tax strategies during the tax year, as well as getting your tax documents organized in advance will help better streamline your tax filing experience. It can also serve as a launching pad should you plan to get married in the future and need to make other tax decisions.