Tax

Figuring out Your Correct Filing Status

Your filing status determines which tax forms you need to file, the amount of your standard deduction, eligibility for certain tax credits, and how much tax you owe. In some cases, it may even impact whether you need to file a federal income tax return.

Single, married, divorced? Kids or no kids? These are just a few of the questions that help you figure out your correct filing status when filing your income tax return. While the most common filing statuses are “Single,” “Married Filing Jointly,” and “Head of Household,” there are five different filing status options listed on a federal tax return. Here are the five:

1. Single. Single filing status generally applies if you are not married, divorced or legally separated according to state law.

2. Married Filing Jointly. A married couple may file a return together using the Married Filing Jointly status. If your spouse died during 2019, you usually may still file a joint return for that year.

3. Married Filing Separately. If a married couple decides to file their returns separately, each person’s filing status would generally be Married Filing Separately.

4. Head of Household. The Head of Household status generally applies if you are not married and have paid more than half the cost of maintaining a home for yourself and a qualifying person.

5. Qualifying Widow(er) with Dependent Child. This status may apply if your spouse died during 2017 or 2018 and you didn’t remarry before the end of 2019, you have a dependent child and you meet certain other conditions.

Sometimes more than one filing status applies, so it is important to work with a tax professional that can help you figure out which filing status is more beneficial, resulting in the lowest amount of tax owed. Something else to keep in mind is that your marital status on the last day of the year is your marital status for the entire year, so if your divorce is not final on December 31, you are still considered “married” for the 2019 tax year. If you have any questions about filing status, please call.

• By Leon Clinton
• February 23, 2020

Student Loans: Cancellation of Debt Relief

Taxpayers who took out federal or private student loans to finance their attendance at a nonprofit or for-profit school now qualify for safe harbor with regard to cancellation of debt income for discharged student loans. Relief is also extended to any creditor that would otherwise be required to file information returns and furnish payee statements for the discharge of any indebtedness within the scope of this revenue procedure.

Background

Previously, the Treasury Department and the IRS provided relief for federal loans discharged by the Department of Education under the Closed School or Defense to Repayment discharge process, or where the private loans are discharged based on settlements of certain types of legal causes of action against nonprofit or other for-profit schools and certain private lenders. However, this relief is now extended to taxpayers who took out federal and private student loans to finance attendance at nonprofit or other for-profit schools not owned by Corinthian College, Inc. or American Career Institutes, Inc.

What this means for taxpayers

Under the safe harbor, taxpayers should not report the amount of the discharged loan in gross income on his or her federal income tax return. Additionally, the IRS will not require that a creditor must file information returns and furnish payee statements for the discharge of any indebtedness within the scope of this revenue procedure.

Questions? Don’t hesitate to call.

• By Leon Clinton
• February 21, 2020

Six Facts About Form 1040-SR

Taxpayers aged 65 or older now have the option to use Form 1040-SR, U.S. Tax Return for Seniors, thanks to the Bipartisan Budget Act of 2018, which required the IRS to create a tax form for seniors. Here are six facts you should know:

1. Form 1040-SR is designed with larger font size (i.e., “large print”) to make it easier to read, as well as a standard deduction chart, both of which make it easier for older Americans to read and use. Taxpayers who electronically file Form 1040-SR may notice the change when they print their return.

2. Both the 1040 and the 1040-SR use the same “building block” approach introduced last year that can be supplemented with additional Schedules 1, 2 and 3 as needed. Many taxpayers with basic tax situations can file Form 1040 or 1040-SR with no additional schedules.

3. Taxpayers born before January 2, 1955, have the option to file Form 1040-SR whether they are working, not working or retired. The form allows income reporting from other sources common to seniors such as investment income, Social Security and distributions from qualified retirement plans, annuities or similar deferred-payment arrangements.

4. Seniors can use Form 1040-SR to file their 2019 federal income tax return, which is due April 15, 2020. All lines and checkboxes on Form 1040-SR mirror the Form 1040 and both forms use all the same attached schedules and forms. The revised 2019 Instructions cover both Forms 1040 and 1040-SR.

5. Eligible taxpayers can use Form 1040-SR whether they plan to itemize or take the standard deduction. Taxpayers who itemize deductions can file Form 1040-SR and attach Schedule A, Itemized Deductions, when filing a paper return. For those taking the standard deduction, Form 1040-SR includes a chart listing the standard deduction amounts, making it easier to calculate. It also ensures seniors are aware of the increased standard deduction for taxpayers age 65 and older.

6. Married people filing a joint return can use the Form 1040-SR regardless of whether one or both spouses are age 65 or older or retired.

If you have any questions about Form 1040-SR, please call.

• By Leon Clinton
• February 19, 2020