Understanding Tax Terms: Head of Household

The tax term head of household is one of the more misunderstood tax phrases inside the U.S. tax code. However, if your situation warrants head of household status, there are two big tax benefits: First, a higher standard deduction. Second, lower effective tax rates for virtually every income level. This is great, but only if you qualify.​

Three key qualifications

There are three specific rules to qualify for the head of household status:

1. You are not married. First, you need to be unmarried or considered unmarried as of the last day of the year. Unmarried means single, divorced or legally separated per a court order. You can also be considered unmarried if you are legally married, but you and your spouse are separated and live in different residences for the last half of the year.?

2. You pay half of the cost to keep up your home. Second, you need to support yourself. You do this by showing that you provide at least half the cost to keep up your home. The IRS provides a worksheet to help you calculate this, but the idea is to add up household costs and determine that you pay more than half throughout the year. Here are examples:

• Costs to include: Rent, mortgage interest, property taxes, homeowners insurance, repairs, utilities, and food eaten in your home.
• Costs not to include: Clothing, education, medical expenses, vacations, life insurance and transportation.

3. There is a qualifying person living with you for at least half the year. This can be the most complicated of the three requirements. Essentially, you must have a dependent that is supported by you. So if you can claim a person as a dependent and they live with you for at least six months during the year in question, you probably meet this requirement. Beyond your son or daughter, a qualifying person can also be a sibling, parent, grandchild, grandparent, and other relatives. There is also a special rule for caring for your parent. You may be eligible as head of household even if your parent doesn't live with you, as long as you provide more than half the cost of keeping up their home.

Making the right decision on filing status can save you thousands of dollars in taxes, but you have to know the rules. If you have questions regarding your current situation or have a life change that may qualify you for the head of household filing status, feel free to call.

"Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
 
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
 
We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area. 

Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs.  
 
We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at [email protected]. 
 
For more free resources, such as Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com.

Mia Verc, CPA;  Janice Papais, CPA