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What filing status should I choose?

Your “filing status” helps determine how much taxes you owe and the size of your refund. There are 4 main options to choose from, but most new parents should be using Head of Household or Married Filing Jointly. We’ve outlined the key differences below, but you can use an interactive tool from the IRS to help you identify your status. 

 

Here are some of the key differences: 

  • Head of Household - For single parents or taxpayers who live with their child or another dependent and provide for them by covering more than half of costs of keeping up a home. Taxpayers who are married, but who lived apart from their spouse for the last 6 months of the year may use this status IF they are filing a separate return from their spouse, paid more than half the cost of keeping up the home, and live with their child. 

  • Single - For single taxpayers who are unmarried and will not have a child as of December 31, 2020. Parents who are unmarried and have a child who will be claimed by the other parent would also use this status. 

  • Married Filing Jointly  - For taxpayers who are married, live together, and will be filing taxes with their spouse. They may or may not have children. 

  • Married Filing Separately - For taxpayers who are married, and will be filing taxes separately from their spouse. This filing status means you miss out on many tax credits, so it should only be used if required. 

 

If your spouse is a nonresident alien, please see the FAQ below. 

 

If your spouse died in 2020, you will file as Married Filing Jointly or Married Filing Separately. If your spouse died in 2018 or 2019, you may be eligible to file as Qualifying Widower, but we encourage you to use the IRS tool to determine what filing status is best for you. 

What counts as self employment?

The IRS classifies self-employed individuals into the following categories: 

Can I deduct self employment expenses?

If you work for yourself or are a contractor, there are certain expenses that you can use to decrease your tax bill. If you use tax software it can help you identify these expenses and make the process easier for you. It also can save your info, so if nothing changes, you can transfer last year’s info into the new tax year.

 

Here are six ways to write off taxes:

  • Startup costs: If you recently started a new business, you can deduct the startup costs from your tax bill. These include legal fees, marketing costs and more.

  • Vehicle expenses: You can deduct up to $25,000 in vehicle expenses in addition to the mileage deduction for travel expenses.

  • Home office deduction: You can deduct your home office if you maintain a space dedicated to work tasks only. To do so, measure the square footage of your home office to determine how much you can deduct for rent or mortgage payments, utilities and property taxes. 

  • Supplies and equipment: Any office supplies or equipment necessary for the functioning of your job can be deducted from your taxes.

  • Social Security and Medicare taxes: Just like other employers, self-employed people must pay the full Social Security and Medicare tax. However, they can write off half of it at the end of the year.

  • Health insurance premiums: If you are self-employed, you might be eligible to deduct healthcare costs for you and your family from your taxes.

Who qualifies as a dependent?

You can use this checklist to determine if you should claim a dependent on your taxes:

  • Are they a citizen or resident? The person must be a U.S. citizen, a U.S. national, U.S. resident, or a resident of Canada or Mexico. 

  • Are you the only person claiming them as a dependent? You can’t claim someone who takes a personal exemption for himself or claims another dependent on his own tax form.

  • Are they related to you? The child can be your son, daughter, stepchild, eligible foster child, brother, sister, half brother, half sister, stepbrother, stepsister, adopted child or an offspring of any of them.

  • Do they meet the age requirement? Your child must be under age 19 or, if a full-time student, under age 24. There is no age limit if your child is permanently and totally disabled.

  • Do they live with you? Your child must live with you for more than half the year, but several exceptions apply. Note that a newborn born anytime in 2020 would not need to have lived in the house for 6 months, and instead would just need to have lived there for more than half the time since birth. For example, if the child was born on December 31st and lives with mom and meets the other requirements, it would be considered a dependent. 

  • Do you financially support them? Your child may have a job, but that job cannot provide more than half of her support.

  • Are you the only person claiming them? This requirement commonly applies to children of divorced parents. Here you must use the “tie breaker rules,” which are found in IRS Publication 501. These rules establish income, parentage and residency requirements for claiming a child.

How are self employment taxes calculated?

As a self-employed person, you have to take a more hands-on approach to filing taxes which requires paying more tax and paying it proactively in quarterly installments. 

  • First, you are responsible for paying the self-employment tax (Self-Employment Contributions Act tax) which is the self-employed person's version of the FICA (Federal Insurance Contributions Act) tax which is paid by employers and employees for Social Security and Medicare. This tax includes 12.4% for social security and 2.9% for Medicare.

  • Second, you need to prepay your taxes owed in quarterly installments. You know how when you received paychecks as an employee your “take-home pay” was always less than what you really made? That’s because your employer was taking money from your paycheck to pay taxes to the government for Social Security, Medicare, and income tax. Now, because you are the employer, you essentially need to do this same thing! 

You can learn more about how to estimate your taxes owed in this IRS article on Estimated Taxes.

How does healthcare impact my taxes?

There is no federal penalty for not having health insurance in 2020. Starting in 2019, the Tax Cut and Jobs Act changed the Affordable Care Act’s (ACA’s) individual mandate penalty to zero. This means that when filing federal taxes, there is no penalty for not having healthcare coverage. That said, some states do still have penalties in place and may impose them when they complete their state income tax returns.