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The connection between filing status and tax dependents

Every taxpayer knows that filing status makes a difference to your eventual tax bill.

You have five choices on how you can file your taxes: single, married filing jointly, married filing separately, surviving spouse with dependent child and head of household.

October 17 countdown 7 Each option offers certain filing advantages or limits, so selecting the correct one is key.

While the choices might seem straightforward, sometimes it's easy to make a status misstep, especially when tax dependents are involved.

You did notice that dependents, those folks who rely on you for support, are expressly mentioned in one status, right? That's the surviving spouse filing option, also known as qualifying widow or widower.

Dependents also are key in determining head of household status.

In both of these filing situations, being able to claim a dependent allows a taxpayer a larger standard deduction amount and a bit of an income tax rate break.

Surviving spouse: For the year in which the spouse dies, a widow or widower can file that year's tax return as married filing jointly.

But then for the next two years, as long as the surviving spouse is taking care of a dependent child or children, he or she can file as a surviving spouse.

This means the taxpayer basically gets to use the filing thresholds afforded married joint filers as long as:

  1. A dependent child lived with the taxpayer for the full tax year and
  2. The taxpayer paid for more than half the cost of keeping up the home for him- or herself and the child or children.

The obvious tax advantages of the surviving spouse filing status include a larger standard deduction amount and more income counted in lower income tax brackets.

Head of household: This filing status applies to unmarried taxpayers who provided more than half the cost of keeping up a home for themselves and a qualifying person who lived in the home for more than six months during the tax year.

This applies to single taxpayers with qualifying depending, regardless of whether the taxpayer has never been married or is now filing after being divorced.

Tax rates for head of household taxpayers are more favorable than those in the single or married filing separately categories.

Head of household filers also can claim a larger standard deduction amount than what's available to single taxpayers.

Determining dependents: Again, the key is making sure you have a qualified dependent.

For head of household, this can be your qualifying child, for which there are five dependency tests the child must meet.

Or it can be a qualifying relative, such as a sibling (step and half brothers and sisters count, too), nieces and nephews or even a parent.

The IRS has slightly different rules that potential qualifying relative dependents must meet before they can be claimed on a tax return.

Unlike a qualifying child, a qualifying relative can be any age.

Another difference between a relative and child for tax dependency purposes is income. A qualifying relative can't make more than the annual exemption amount. For 2010, that's $3,650.

But an advantage that a qualifying relative might have over a qualifying child is that in some cases, the relative doesn't have to live with you for you to claim him or her on your taxes.

IRS Publication 17 has all the many, many details about filing status, qualifying children (starting on page 26) and qualifying relatives (beginning on page 30).

Check them out so that you know whether you'll be able to claim a dependent and complete your 1040 using a more advantageous filing status.

Final tax-filing tips: Make sure you don't miss any filing tips as we head toward the final 2010 tax filing deadline.

Information to help you meet next week's due date can be found at the special Countdown to Oct. 17, 2011, blog page.

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