Figuring out your filing status is the easy part. Figuring out what that means for your taxes is a little more complicated.
Here's a simple flowchart to help you get started (but if you're a zoomer, you're probably filing single):
And just to be super specific, here are a few definitions:
Dependent: You have a dependent if you cover at least half of the expenses for the household where they live at least half the year. Dependents are usually sons/daughters, grandchildren, siblings, nieces/nephews, and so on. Your parents probably declared you as a dependent until recently (or even currently). Any one person can only be declared as a dependent once (so divorced parents or parents that are married filing separately cannot both claim their children as dependents). In addition, no one who is married-filing-jointly can be claimed as a dependent.
Note: A dependent can still file their own taxes. They just cannot pay for more than half
of their own expenses during the year.
Married: Married means legally married with filed paperwork by 12/31 of the year in question. For example, if you get married 12/30/2020, you would file as married for your 2020 taxes. Note that from the year that a divorce is finalized onward, you are no longer considered married. If you are married, you CANNOT file as Head of Household. This is meant for single parents.
Widow(er): This is someone whose spouse has died within the last two years, who has not remarried, and who has at least one dependent. This is very specific and not very common, but has huge tax benefits.
What does your filing status mean, and why does it matter?
Your filing status determines how much you'll pay in taxes. It determines what deductions you are eligible for if you do itemized deductions, or what amount you can deduct if you go with standard deductions.
Ok, back up a second. What are these deductions? Well, certain things that you spend money on throughout the year aren't taxed. This includes interest on student loans or a mortgage, money you donate, daycare expenses, medical expenses, and much more.
If you are very organized and also happen to pay a lot toward these specific things, it makes sense to itemize your deductions. In other words, you add up all of the money you spent on these things and deduct that from your total salary, in order to determine how much you need to pay in taxes. For example, if I make $100,000 but donate $10,000 and pay $5,000 in student loan interest this year, then I'll only owe taxes on $85,000 of income.
On the other hand, say I didn't keep my donation receipts or didn't get any. Or I pay off my student loans. In that case, you can simply use a standard deduction, which is a set amount of money you're allowed to deduct from your income. The government assumes that some of your money goes toward boring, necessary expenses, and decides to give you a break on the taxes.
You can choose either itemized or standard deductions, and generally you should pick whichever is higher. If you donated $25,000 last year, itemized deductions will definitely give you more of a tax break. In terms of standard deductions, they ranged from $12,400 to $24,800, depending on your filing status.
Single and married-filing-separately taxpayers get $12,400 standard deductions in the 2020 year. Similarly, window(ers) and married-filing-jointly taxpayers get a $24,800 standard deduction. Head of household gets a higher standard deduction that any other single person, at $18,350.
You know how everyone always gets married and has babies just for the tax benefits? Check back soon for another article explaining how much they'll save you.
Until next time!