How Filing Status Affects Your Tax Return

A taxpayer’s filing status defines the type of tax return form they should use when filing their taxes. Filing status can affect the amount of tax they owe, and it may even determine whether they need to file a tax return at all. As taxpayers get ready for the upcoming filing season, let’s take a closer look at how filing status affects a tax return.

Taxpayers can choose from five different filing statuses when filing their returns:

  • Single. Normally, this status is for taxpayers who are unmarried, divorced, or legally separated under a divorce or separate maintenance decree governed by state law.
  • Married filing jointly. A taxpayer can file a joint tax return with their spouse if a taxpayer is married. When a spouse passes away, the widowed spouse can usually file a joint return for that year.
  • Married filing separately. Married couples can choose to file separate tax returns. Doing so may result in less tax owed than filing a joint tax return.
  • Head of household. Unmarried taxpayers may be able to file using this status, but special rules apply. For example, the taxpayer must have paid more than half the cost of keeping up a home for themselves and a qualifying person living in the home for half the year.
  • Qualifying widow(er) with dependent child. This status may apply to a taxpayer if their spouse died during one of the previous two years and they have a dependent child. Other conditions also apply.

When preparing and filing a tax return, filing status affects:

  • If the taxpayer is required to file a federal tax return
  • If they should file a return to receive a refund
  • Their standard deduction amount
  • If they can claim certain credits
  • The amount of tax they should pay

Filing status generally depends on the taxpayer’s marital status as of December 31 of the filing tax year (e.g., 2022). More than one filing status may apply in certain situations. If this is the case, taxpayers can usually choose the filing status that allows them to pay the least amount of tax.

Not sure which filing status you should use this year? Help is just a phone call away.

San Jose: (408) 252-1800

Watsonville: (831) 726-8500

Standard vs. Itemized Deductions

When completing a tax return, taxpayers have two options: take the standard deduction or itemize their deductions. Most taxpayers use the option that gives them the lowest overall tax. Due to all the tax law changes in recent years, including increases to the standard deduction, that means taking the standard deduction – but not always. Let’s look at a few details about these two options.

Standard deduction

The standard deduction amount increases slightly every year and varies by filing status. Factors that affect the standard deduction amount include the taxpayer’s filing status, whether they are 65 or older or blind, and whether another taxpayer can claim them as a dependent. Taxpayers who are age 65 or older on the last day of the year and don’t itemize deductions are entitled to a higher standard deduction.

Most filers who use Form 1040, U.S. Individual Income Tax Return, can find their standard deduction on the first page of the form. For most filers of Form 1040-SR, U.S. Tax Return for Seniors, the standard deduction is on page 4.

Not all taxpayers can take a standard deduction. Those taxpayers include:

  • A married individual filing as married filing separately whose spouse itemizes deductions – if one spouse itemizes on a separate return, both must itemize.
  • An individual who files a tax return for a period of less than 12 months. This situation is uncommon and could be due to a change in their annual accounting period.
  • An individual who was a nonresident alien or a dual-status alien during the year. However, nonresident aliens who are married to a U.S. citizen or resident alien can take the standard deduction in certain situations.

Itemized deductions

Taxpayers who choose to itemize deductions should file Schedule A, Form 1040, Itemized Deductions. Itemized deductions that taxpayers may claim include:

  • State and local income or sales taxes
  • Real estate and personal property taxes
  • Home mortgage interest
  • Mortgage insurance premiums on a home mortgage
  • Personal casualty and theft losses from a federally declared disaster
  • Gifts to a qualified charity
  • Unreimbursed medical and dental expenses that exceed 7.5% of adjusted gross income

Some itemized deductions, such as the deduction for taxes, may be limited. Don’t hesitate to contact the office for more information on these limitations or any other questions.

Questions?

If you’re wondering which option is right for you, feel free to give us a call.

San Jose: (408) 252-1800

Watsonville: (831) 726-8500

Unemployment Tax Break Refunds Issued for 2020

Final corrections for taxpayers who overpaid their taxes on unemployment compensation received in 2020 have been completed by the IRS. Approximately 14 million returns were corrected, resulting in nearly 12 million refunds totaling $14.8 billion.

Background

The American Rescue Plan Act of 2021, which became law in March 2021, allowed taxpayers to exclude up to $10,200 in 2020 unemployment compensation from taxable income calculations (up to $10,200 for each spouse if married filing jointly). The exclusion applied to individuals and married couples whose modified adjusted gross income was less than $150,000.

To ease the burden on taxpayers, the IRS reviewed Forms 1040 and 1040-SR that were filed prior to the law’s enactment to identify taxpayers who had already reported unemployment compensation as income and were eligible for the correction. The IRS determined the correct taxable amount of unemployment compensation and tax.

Overpayments Refunded or Applied to Tax Due

With an average refund of $1,232, some taxpayers received refunds, while others had the overpayment applied to taxes due or other debts. In some cases, the exclusion only resulted in a reduction in their adjusted gross income. Letters were mailed to these taxpayers to inform them of the corrections. Taxpayers should keep that letter with their tax records.

Many of the adjustments included corrections to the:

  • Earned Income Tax Credit
  • Recovery Rebate Credit
  • Additional Child Tax Credit
  • American Opportunity Tax Credit
  • Premium Tax Credit
  • Advance Premium Tax Credit

Of note is that a taxpayer who is eligible for the unemployment compensation exclusion but whose account was not corrected by the IRS may need to file an amended 2020 tax return. Taxpayers who filed 2020 Forms 1040 and 1040-SR can file Form 1040-X, Amended U.S. Individual Income Tax Return, to claim the exclusion and any applicable non-refundable or refundable credits impacted by the exclusion. Taxpayers should not file an amended return if they previously filed one claiming the exclusion.

Taxpayers that need to file an amended tax return can view their 2020 tax records in their Online Account or request that a 2020 tax account transcript be mailed to them. Please call the office for more information about this topic, including eligibility requirements.

Questions?

If you have questions, we’re happy to assist.

San Jose: (408) 252-1800

Watsonville: (831) 726-8500

Small Business: Deducting Startup Costs

If you’ve recently started a business – or are thinking about starting a business – you should know that as an owner, all eligible costs incurred before you began operating the business are treated as capital expenditures. As such, they are part of the cost basis for the business.

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Taxable vs. Nontaxable Income

Are you wondering if there’s a hard and fast rule about what income is taxable and what income is not? The quick answer is that all income is taxable unless the law specifically excludes it. But as you might have guessed, there’s more to it than that.

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Do You Need To File a 2022 Tax Return?

Most people file a tax return because they have to, but even if you don’t, you might be eligible for a tax refund and not know it. The tax tips below should help determine whether you must file a tax return this year.

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Employee Spotlight – Q4 – 2022

This quarter’s employee spotlight is another triple feature as Natalie Nguyen, Joseling Torrez, and Helen Phan all earned the title of Employee of the Quarter through their valuable contributions to the firm.

Natalie demonstrates excellent project management skills, successfully managing a large volume of PPP and ERC projects over the last 2 years. She takes the lead on several large family client groups, continues to improve her technical skills in more advanced areas and is extremely proactive in her work.

Joseling is highly accountable. Like Natalie she maintains a high level of technical skill – working on a recent $30M partnership sale project. Joseling has also been a huge help to the recruiting committee and additionally serves as an onboarding process liaison.

Helen demonstrates strong ownership of her projects. She is proactive in getting projects off the ground, following up externally and internally. Whenever Helen encounters a new problem, she researches and provides solutions.

Congratulations to Natalie, Joseling and Helen for being selected as this quarter’s Employees of the Quarter!

Welcome Akshara Mishra

Please join us in welcoming the arrival of Prasanti Mishra’s newborn baby girl, Akshara!

Akshara Mishra was born on Wednesday, January 11th. Both Prasanti and baby are doing well. Congratulations to Prasanti!

Tax Relief for Californians Impacted by Storms

The office of Governor Gavin Newsom has announced that California will conform to the filing extensions granted by the IRS for California storm victims. The FTB has officially extended filing and payment deadlines for applicable individuals and businesses until May 15, 2023.

This relief applies to all of the following deadlines:

  • Individual income tax returns;
  • Business return filings normally due between March 15 and April 18, 2023;
  • Fourth quarter (2022) and first quarter (2023) estimated tax payments due on January 17, 2023, and April 18, 2023 respectively. Individual taxpayers can skip making the fourth quarter estimated tax payment and instead include it with the 2022 return as long as the return is filed on or before May 15, 2023;
  • IRA and health savings account (HSA) contributions; and
  • Quarterly payroll and excise tax returns, normally due on January 31, 2023, and April 30, 2023.


The FTB also announced they would suspend the mailing of collection notices to affected taxpayers for 30 days, beginning January 13, 2023.

The relief is automatically available to taxpayers who reside or have a business in the following counties:

Alameda
Butte
Calaveras
Colusa
Contra
Costa
El Dorado
Fresno
Glenn
Humboldt
Kings
Lake
Los Angeles
Madera
Marin
Mariposa
Mendocino
Merced
Mono
Monterey
Napa
Orange
Placer		Riverside
Sacramento
San Benito
San Bernardino
San Diego
San Francisco
San Joaquin
San Luis Obispo
San Mateo
Santa Barbara
Santa Clara
Santa Cruz
Siskiyou
Solano
Sonoma
Stanislaus
Sutter
Tehama
Trinity
Tulare
Ventura
Yolo
Yuba

To read the Governor’s news release for yourself, follow this link.