Question

What are the fundamental purposes of filing statuses in the tax system?

Which of Adam Smith’s principles of taxation do filing statuses provide to the tax system? Why?

Who in our society would benefit or suffer if the head of household filing status is eliminated (address both groups)?

What are some impacts of the head of household filing status (benefits and detriments, both intended and unintended)?

Answer 1

ANSWER:

DEFINITION of 'Filing Status'

Filing status is a category that defines the type of tax return form a taxpayer must use when filing his or her taxes. Filing status is closely tied to marital status.

BREAKING DOWN 'Filing Status'

The filing status is important because a person's tax bracket (and, therefore, the amount he or she must pay) is determined by marital status, number of children, occupation, and several other factors. You must file your status honestly, or it will be considered fraudulent and penalties will be assesse

Adam Smith

The principles of good taxation were formulated many years ago. In The Wealth of Nations (1776), Adam Smith argued that taxation should follow the four principles of fairness, certainty, convenience and efficiency. Fairness, in that taxation should be compatible with taxpayers’ conditions, including their ability to pay in line with personal and family needs. Certainty should mean that taxpayers are clearly informed about why and how taxes are levied. Convenience relates to the ease of compliance for the taxpayers: how simple is the process for collecting or paying taxes? Finally, efficiency touches on the collection of taxes: basically put, the administration of tax collection should not negatively affect the allocation and use of resources in the economy, and certainly shouldn’t cost more than the taxes themselves.

Principles of good taxation

Taxation: one of the clearest manifestations of the powers of a public authority.

It has existed since the earliest forms of recorded government in history: from ancient Egypt, when the pharaohs levied taxes in the form of shares of agricultural production and labour; to ancient Rome where farmers were required to pay a tenth of their production (decima) to the tax administration (aerarium); and even in Medieval Europe, where a similar taxation system became one source of financing for the Church.

Need to Know About Filing Head of Household:

One of the first things you’ll need to decide when you’re getting ready to do your taxes is which filing status you’ll use. If you have qualifying dependents, you may be eligible to file as the head of your household. That can potentially keep more money in your pocket. Not everyone can claim head of household, however, so you need to be clear on what the rules are before you file.

Head of Household:

There are three specific guidelines the IRS expects you to meet to qualify as head of household.

First, you have to be unmarried or considered unmarried on the last day of the tax year. If you’re legally separated, your spouse didn’t live with you during the last six months of the year and you and your spouse file separate tax returns, you are considered unmarried. If the circumstances of your separation are temporary, such as a military deployment, the IRS will consider you married for tax

Advantages of Claiming Head of Household:

Claiming “head of household” as your filing status versus filing as single or married filing separately benefits you in two ways. First, it can help you to snag a lower tax rate. For tax year 2017, for example, the 15% tax rate applies to single filers with an adjusted gross income that’s between $9,326 and $37,950. If you file head of household, however, you can earn up to $50,800 before being bumped out of the 15% tax bracket.

References

• David, R. (1817). On the principles of political economy and taxation. Bohn's Economic Library (London: G. Bell & Sons, 1891), passim.
• Blundell, R. (2006). Earned income tax credit policies: Impact and optimality: The Adam Smith Lecture, 2005. Labour Economics, 13(4), 423-443.
• Smith, A. (1776). An inquiry into the nature and causes of the wealth of nations: Volume One.
• Viner, J. (1927). Adam Smith and laissez faire. The Journal of Political Economy, 198-232.

Author: Maciej Sawicki