It’s that time of year again: time to think about taxes.
While there is plenty we could say on the topic, let’s try to keep this manageable. Here are five things I think you need to know if you’re a new widow (or widower).
And of course, this comes with the disclaimer that I don’t have a formal background in finance and don’t have any fancy initials like CFP or CPA after my name. This is general information and shouldn’t be considered tax advice for you specifically. If you have any questions or need guidance, please see your tax preparer or financial planner for personalized advice.
With that out of the way, here we go.
Widows Income Tax Advice for 2017
1. Your filing status depends on your dependents and when your spouse died.
There is no widows income tax credit, but the government does have a special filing status for some widows. You want to pick the right filing status because it determines how much of your income is excluded from federal taxes.
Here are the different ways you can file:
- Married: If your spouse died in 2016, you should file your taxes just as if he or she were alive. Enter all their income and expenses as you would in any other year. The only difference for this year’s income tax filing is you’ll need to check a box and fill in the date of death.
- Qualifying Widow(er): If your spouse died in 2015 or 2014 AND you have dependent children, you can use the qualifying widow(er) filing status. This status gives you the same exemption as if you were filing married jointly.
- Head of Household: If your spouse died in 2013 or earlier, you may be able to use the head of household filing status. It is for those who are single, unmarried and have dependents. To qualify for this status, you must pay for at least half the household’s expenses.
- Single: If your spouse died in 2015 or earlier, and you do NOT have dependents, you’ll have to use the single filing status.
2. You don’t pay taxes on your kids’ Social Security.
If you have dependent children at home and they receive Social Security survivor benefits, you do not have to claim this as income on your tax forms. Even though you are likely the one receiving and spending that money on behalf of your kids, it is their money, not yours.
Now, if you have a teen with a job, they should include their Social Security benefits if they are filing a return. Most likely, the money won’t be taxable, but it could be if they are working close to full-time or have a high-paying position.
Social Security income may be taxable if your child’s base income is greater than $25,000. To find the base income, add half of his or her Social Security benefits to the total of their income for the year. If you receive Social Security benefits yourself, the same rule applies to whether your benefits could be subject to federal income taxes.
3. Life insurance death benefits are tax-free.
Life insurance benefits can be a Godsend during a difficult time. Fortunately, money you receive from a policy’s death benefit is not taxable and doesn’t need to be included on your income tax return.
4. Funeral expenses can’t be deducted.
While it would be nice, the government doesn’t allow individuals to deduct the cost of a funeral from their individual income taxes.
There is a funeral expenses deduction allowed for estates, but it’s not a situation that would apply for most widows and widowers. Plus, the deduction is made against the value of the estate and any taxes owed by it. It doesn’t affect a surviving spouse’s income tax return.
5. Free tax preparation help may be available.
Overwhelmed? That’s to be expected, particularly if you’re dealing with the fresh grief of losing your spouse.
While you can always hire a CPA or tax preparer to help you, there are also free options available if money is tight. The Volunteer Income Tax Assistance program, known as VITA, provides access to IRS-certified volunteers who can help prepare taxes for free. Free tax preparation is typically available to those with incomes of $54,000 or less, although some areas may have higher thresholds.
The VITA program is typically offered through community non-profit organizations. While the IRS website has a place to search for local VITA locations, it didn’t bring up any search results for me. That’s even though I know one is located only five minutes from my house.
Rather than rely on the IRS website, you may have better luck by simply searching for “Volunteer Income Tax Assistance program” and your city name or calling your local United Way office to see if they can refer you to a local agency.
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