The buzz of holiday festivities has been replaced with trepidation for probably the one season that nobody looks forward to: tax season.
Between January and mid-April, millions of Americans will take part in their much-maligned civic duty. And there are five different filing statuses — single, married filing jointly, married filing separately, head of household and qualifying widow(er) with dependent child — with each offering upsides and downsides. For those unsure, the IRS recommends its online tool, called “What’s my filing status?,” to determine which box to check.
Your filing status can affect the tax credits you receive and how much you’ll have to pay. While being married or qualifying as the head of a household offers numerous tax benefits, single filers need not despair.
Taxpayers who qualify as single are those who are “unmarried, divorced or legally separated under a divorce or separate maintenance decree governed by state law,” according to the IRS.
The single filer designation, however, is probably the most misunderstood, according to Mandi Alt, instructor of accountancy at the University of Illinois Urbana-Champaign and a former certified public accountant.
Alt said there are many misconceptions around the single filer status, often involving deductions.
“One misconception I hear a lot is that if you have gambling losses, they are deductible. ... They are to a certain extent, but only deductible as an itemized deduction, and a lot of people don’t use their itemized deduction,” said Alt.
The current standard deduction amount for single filers is $13,850, a number determined annually as a baseline measure of the cost of basic necessities, according to Alt.
Taking the standard deduction instead of itemizing deductions and expenses, which she recommended if your expenses are more than $13,850, can cause some taxpayers to miss out on credits gained from doing things like donating to charity.
“So then things like making donations to charitable organizations and gambling losses don’t benefit the taxpayer,” Alt said.
Starting an individual retirement account, or IRA, is one good way of both planning for the future and getting a tax credit, Alt said.
“If you put money into that you can get a tax deduction, if it’s a certain kind of IRA. You can get tax deductions if you contribute to your employer-provided retirement plans via a 401(k).”
Taxpayers with a low income can also get a further credit for planning for retirement.
“If you’re fairly low income, you can get what’s called a retirement savings credit,” Alt said. “So you can actually get a tax credit for the percentage of those contributions that you make to your retirement plan. So putting money into your retirement plan is often a good way to save taxes.”
Other potential tax credits
This year, there are changes to existing energy credits, including credits for those purchasing electric vehicles and investing in solar technology.
“The solar tax credit is 30% of the cost of the system. So that can be a very large credit, because those are expensive systems to install,” she said.
The credit, known as the residential clean energy tax credit, was raised from 26% to 30% by the Inflation Reduction Act for those whose qualifying systems were in service from 2022 and extends until 2032, according to the the U.S. Department of Energy. It will decrease to 26% for systems installed in 2033 and to 22% for systems installed in 2034.
The Inflation Reduction Act, passed in 2022, also modified the EV tax credit for years 2023 through 2032 for people who purchased a qualifying EV or plug-in hybrid vehicle.
“The electric vehicle tax credit kind of depends on what kind of vehicle it is, but it could be up to a $7,500 tax credit. So a tax credit is going to reduce your tax dollar for dollar,” Alt said.
For used EVs, the credit can be up to $4,000. Alt recommended those interested visit fueleconomy.gov to check if their vehicle qualifies.
This year also sees the expansion of Illinois’ earned income tax credit, or EITC, which is for workers with low to moderate income that helps offset federal and other income taxes they’ve paid. Filers who qualify for the federal EITC are generally eligible for the state credit, which was increased in 2023 to 20% of the federal credit. It was also extended to filers ages 18-25 and 65 and older.
Another lesser-known credit for single filers is the American opportunity tax credit that allows taxpaying students or their parents to reduce the cost of college for the first four years. It allows an annual $2,500 credit.
“If the credit brings the amount of tax you owe to zero, you can have 40% of any remaining amount of the credit (up to $1,000) refunded to you,” according to the IRS.
But the IRS notes filers should keep copies of documents they use to to determine their credit amount. If a filer is audited by the IRS and the claim is incorrect, and they don’t have the documents to prove eligibility, the filer must pay back the amount they received plus interest.
Help available
Single filers, or even those filing under a different status, can receive help through the U. of I. Alt runs the university’s Volunteer Income Tax Assistance program, an IRS program offering free tax assistance for filers with a gross income of $60,000 or less per year.
U. of I.’s VITA program is partly staffed by students in the accounting program.
“We do find that we have people coming from pretty far distances to access our services just because it’s hard to find them,” Alt said.
There are other VITA programs, such as those offered by Chicago-based nonprofit Ladder Up, along with other free tax assistance services through places such as a local AARP office.
