24 May 11 CPE Course Essentials about Filing as Head of Household
The primary issue affecting a person's income tax is filing status. This element determines the applicable tax rate and the amount of standard deduction. It is therefore a critical factor to accurately assess by anyone who has become a tax preparer.
A favorable filing status applies to individuals who qualify as head of household. Taxpayers who meet the qualifications for this filing status incur a lower tax rate and higher standard deduction than filing as single. The standards for head of household as conveyed in tax CPE are that a taxpayer must have maintained a home for a qualifying person and be considered unmarried.
A person is considered unmarried if single or legally separated on December 31. In addition, a taxpayer who lived separately from his or her spouse for the six months prior to December 31 is considered unmarried.
To maintain a home means to pay at least half the costs of keeping up the residence. This involves paying the majority of household expenses such as food consumed, rent or mortgage payments, property taxes, home insurance, utilities, and cleaning supplies.
Who constitutes a qualifying person is the tricky aspect head of household study for the tax preparer certification exam or the enrolled agent exam. One type of qualifying person is a taxpayer's child, stepchild, or grandchild. Adopted children also provide eligibility for the head of household status. The taxpayer must have provided a home where the child lived for more than half of the tax year. Absences due to education, travel, or illness are permitted.
A foster child also qualifies a taxpayer for head of household status. However, a foster child must have lived with the taxpayer for the entire tax year.
There is one factor addressed in a CPE course that should not be overlooked about a child that qualifies a taxpayer for head of household status. That is, the qualifying child does not have to be claimed as a dependent on the taxpayer's tax return. A foster child is an exception to this rule and must be claimed as a dependent.
Of course, a child who lives with a parent for more than half the year is most likely claimed at a dependent on the parent's tax return. However, this is not a requirement for head of household filing status. For example, a custodial parent may have granted the exemption to the noncustodial parent or the child may have earned enough income to claim his or her own exemption.
The qualifying child must normally be unmarried. A married child may qualify if the taxpayer can claim a dependency exemption, the child does not file a joint tax return, and the child is a US citizen or resident (or a resident of Canada or Mexico).
A qualifying person can also be a grandparent, stepparent, parent-in-law, sibling, stepsibling, sibling-in-law, aunt, uncle, niece, or nephew. Either of these must have lived with the taxpayer for more than half the year and be claimed for a dependency exemption. A parent is a qualifying person for head of household status without having to live with the taxpayer as long as the parent is a dependent.
The facts about filing status are an important part of tax preparation knowledge. Careful self-paced study of the qualifications for head of household status is available with online CPE.
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