Taxes

Set Your Status to Single: 4 Tax Advantages for Solo Filers

People often talk about the tax breaks that come with getting married — but that doesn’t mean unmarried people are out of luck when it comes to getting the most back on their taxes.

In fact, there are several reasons why a single filing status may come in handy during tax refund season. To celebrate Singles Awareness Day, we’ve put together four useful tax benefits for single taxpayers to look forward to in tax year 2021.

1. You have less paperwork to file

Since your marital status often correlates with your tax filing status, marking yourself as “single” on your dating apps and tax forms usually means your life is less complicated — in more ways than one.

You only need to worry about your own tax preparation as a single filer. There’s no waiting around for your spouse’s employer to finally mail their W-2 or the chance of your partner accidentally tossing an important tax form in the garbage (let’s face it, this happens to the best of us!).

Once you have all your necessary forms, you can start filing your tax return right away, meaning you’ll have your tax refund in your bank account sooner rather than later.

2. You may be able to save money on certain tax deductions and tax credits

In some instances, being a single filer can be beneficial when claiming certain deductions and credits on your tax return. If the following examples pertain to you, make sure you take advantage of these tax breaks!

Educational tax credits

Qualifying for certain educational tax credits can be easier as a single filer. For instance, the American Opportunity Tax Credit (AOTC) gives eligible students up to $2,500 off their taxes if they spend the funds on qualified expenses. To qualify for this credit, you must fall within the IRS income limitations. For married couples filing a joint return, any income your spouse makes would also count toward your modified adjusted gross income limitations (MAGI), possibly making you ineligible to claim an AOTC credit that you would have been able to claim had you filed as single.

The Lifetime Learning Credit, which allows students to claim a tax credit of up to $2,000 for qualified education expenses, has similar income limitations that may prove more valuable to solo filers.

Capital loss tax deduction

Single filers also have a tax advantage when reporting and deducting any net capital losses on their tax return. If you experience a net capital loss on your investments as a single filer, you can deduct up to $3,000 of the loss against your other sources of income.

However, if your status is married filing separately, your annual net capital loss deduction limit gets cut in half to only $1,500.

3. You might find yourself in a lower tax bracket

Single filing status can even impact your income tax rates if you are a high earner in the top tax bracket. This is especially true if both you and your spouse are high earners.

Let’s look at the top tax rate for 2021, which was 37 percent for single taxpayers who make more than $523,600. However, for married taxpayers filing jointly, the same tax rate’s income threshold started at only $628,300.

Now, say you and your partner were unmarried, and you each had $350,000 in taxable income, which would put you both in the 35 percent tax bracket. If you and your partner were to get married and file jointly, your combined total income would be $700,000, putting you in the top bracket of 37 percent.

4. You won’t have to deal with any unpleasant tax surprises

Many of us have difficulty knowing how our taxes will change when our tax status changes. As a single filer, you often know what to expect, and you’ve become accustomed to managing your unique tax situation. But once you’re married, any tax debts your spouse owes become your tax liability as well if you file jointly.

Even if your partner doesn’t owe back taxes, a sudden change in your filing status can yield unexpected results for many newlyweds. For example, let’s say you got married early in the year, and neither of you updated your Form W-4 withholding to reflect your new tax status. Sometimes, this leads to not withholding enough income tax, and instead of getting the refund you are used to during tax season, you and your spouse may end up owing a tax bill instead.

Whenever you experience a significant life event, like getting married or having a child, make sure to review your tax withholding to ensure it’s accurate.

Filing status: It’s (less) complicated

If you’re unmarried and don’t qualify for another tax status (such as head of household), that doesn’t mean you’re at a disadvantage when filing your taxes. When you only need to account for yourself, you can minimize unwelcome surprises, file more quickly, and possibly score some additional tax deductions or credits to lower your taxes.

Here’s to embracing the single life and the less complicated taxes that come with it!

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