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REG CPA Practice Questions Explained: The Tax-Payer Filing Statuses

The Tax-Payer Filing Statuses

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In this video, we walk through 5 REG practice questions to help in understanding the tax-payer filing statuses. These questions are from REG content area 4 on the AICPA CPA exam blueprints: Federal Taxation of Individuals.

The best way to use this video is to pause each time we get to a new question in the video, and then make your own attempt at the question before watching us go through it.

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The Tax-Payer Filing Statuses

Filing status is a critical component in determining a taxpayer’s filing requirements, standard deduction, eligibility for credits, and the correct tax rate. The IRS provides several filing statuses, each tailored to specific personal circumstances:

Single

This status is generally used by individuals who are unmarried as of the last day of the tax year. It also can apply to those who are divorced or legally separated under a divorce or separate maintenance decree. The standard deduction for single filers is lower than for some other statuses, and the tax brackets are generally higher per dollar of taxable income compared to “Married Filing Jointly.”

Example: Alex is 30 years old, unmarried, and has no dependents. He rents an apartment and works as a software developer. Alex files his tax return as single since he does not qualify for any other filing status.

Married Filing Jointly (MFJ)

Married couples who choose to combine their income into one tax return benefit from this status. It offers higher standard deductions and lower tax rates on a larger amount of income relative to single filers. Couples are jointly and severally liable for the tax (and any penalties and interest) due on their joint return.

Example: Maria and Jose got married in June. They combine their incomes and deductions and file one tax return together. They choose Married Filing Jointly because it offers lower tax rates and a higher standard deduction compared to filing separately.

Married Filing Separately (MFS)

Married individuals may choose to file separate returns, which might be beneficial if one spouse has significant medical expenses, miscellaneous deductions, or if there are personal reasons to keep financial liabilities separate. However, this can often result in a higher tax payment for each individual, and certain tax benefits may be reduced or disallowed.

Example: Linda and Bob are married but choose to file separately because Bob has significant medical expenses. By filing separately, Bob can take advantage of itemizing his deductions to maximize the tax benefit from his medical expenses, which exceed the threshold percentage of his individual adjusted gross income.

Head of Household (HoH)

This status provides more favorable terms than filing single, such as lower tax rates and a higher standard deduction. To qualify, a taxpayer must be unmarried or “considered unmarried” at the end of the year, have paid more than half the cost of maintaining a home for the year, and have a qualifying child or dependent who lived with them for more than half the year (except for certain qualifying relatives like parents).

Example: Emily is single and lives with her 6-year-old daughter, for whom she provides more than half of the support. Emily pays for more than half of the household expenses. She qualifies for and files as Head of Household, which gives her a higher standard deduction and lower tax brackets compared to filing as single.

Qualifying Widow(er) with Dependent Child

This status allows a widowed spouse to use the married filing jointly tax brackets and the highest standard deduction for two years following the year of their spouse’s death, provided they have not remarried and they have a dependent child. This status is designed to ease the financial burden associated with the loss of a spouse.

Example: Two years ago, Sarah’s husband died, and she was left to care for their young son. Sarah has not remarried and still supports her son. She can file as a Qualifying Widow(er) with Dependent Child, which allows her to benefit from the same tax brackets and standard deduction as Married Filing Jointly, easing her financial situation during this transitional period.

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