I am writing a short story which is a dramatization of a true story. When I classify it, should I tag it as fiction or nonfiction?
There are several levels of fiction and non-fiction.
Documentary. Non-fiction. Basically, a substantially accurate account of the event. A few details might have been inadvertently changed, such as the weather, clothing, or lighting, but almost all assertions correspond to actual facts.
"Based on a true story." Up to about 90% fact, but some details have been deliberately altered. Treated as fiction because it is claimed as such. Everybody connected with the story knows what the "real" facts are, but it is understood that there is not a one-to-one correspondence between story events and actual facts, even though the story line is "mostly" accurate. A dramatization might fall into this category. An example is the "Sound of Music," which e.g. conflated two events, the (1927) marriage of the Captain von Trapp and Maria, and the (1938) "Anschluss," by putting the second event right on the heels of the first in the movie.
"Inspired by a true story." About half-fact, half-fiction. Now we're getting into the realm of true fiction. The important thing to do is to stress the events are likely to be fictitious by NOT making any one part too "true to life." Once you've set such a high standard for part of the story, people will expect the rest of the story to conform to that standard, possibly putting the story into the category above. This kind of a story would not use the Captain's and Maria's real names.
"Suggested by a true story." There are some factual elements, but the story is mostly fiction. Again the trick is to make sure that the facts aren't too "convincing," to the point of leading readers to believe that the rest (fiction) is actually fact.
If the story contains celebrities or public figures it is can be non fiction. If the story is about private citizens: any good lawyer will tell you it's fiction c/w (The names have been changed to protect the innocent).
Here's the problem: if you write "After the birth of their first child Mrs Smith became frigid, her libido died and she had no interest in sex" and the truth is revealed as Mrs Smith spent every day boinking the pool cleaner and had no energy to service her husband when he arrived home - the divorce bill may end up in your lap.