Question

5. Your client qualifies for Head of Household filing status rather than Single status. Head of Household tax rates are lower than the Single tax rates. However, you read that Head of Household rates have a higher IRS audit rate and, after sharing this observation with your client, he has chosen to file as Single. a. If your client qualifies as Head of Household, may you report his filing status as Single? b. Do you have any reasonable speculation about why your client preferred to file as Single?

Answer 1

To file as head of household, you must:

1. Pay for more than half of the household expenses.
2. Be considered unmarried for the tax year, and.
3. You must have a qualifying child or dependent.

Here client qualifies as head of household. If you qualify to file as head of household, your tax rate usually will be lower than the rates for single or married filing separately.

however he wants to file as Single, even he qualified to file as head of household.  you can only select a single filing status if you meet one of three conditions on the last day of the filing year. You must either be unmarried, divorced, or legally separated according to state law. and “Your marital status on the last day of the year determines your marital status for the entire year.”

The possible reasons for selecting single status over head of household may be -

1. Obviously he may have a negative perception regarding IRS Audit.

2. He may not be able to take benefit of exemptions available in Head of Household status to a reasonable extent. i.e he cannot afford the risk of getting selected for an audit.

3. he may have a higher income resulting in higher audit rate.