How Major Life Events Can Impact Your Tax Situation
Are you getting married? Having a baby? Buying a new house?
Not only are these milestones emotional, but major life events almost always have a big impact on your tax situation. Whether it’s how you file, your benefits, or the tax bill you’ll receive, these changes need to be addressed. That’s why it’s essential to make year-round tax planning a priority.
Life Comes At You Fast
The only person who truly has the expertise and training to properly handle your taxes is your CPA. But what life events do they need to know about? The following list will help point you in the right direction:
Marriage
Now that you’re married, your combined wages will likely cause your family income to increase, which means you might move into a higher tax bracket. Don’t forget to reflect this change in your tax planning strategy.
After you say “I do,” you’ll need to change your filing status to either married filing jointly or married filing separately. Your newlywed status also means that you might be able to claim a new tax exemption and possibly adjust your paycheck withholding.
And if you plan to change your name, don’t forget to keep the Social Security Administration in the loop.
Listen to episode 170, “Let’s Talk About Tax, Baby!,” on Rea’s award-winning podcast, unsuitable on Rea Radio, featuring Certified Financial Planner Cindy Kula.
Divorce
There’s a new divorce law on the books, which means new tax implications. Similar to the tax filing status change that occurred when you got married, you’ll need to revert your status back to either single or head-of-household.
Minimize the baggage that accompanies divorce by making sure your dependents, tax credits, overpayments and deductions are accurately divided between you and your ex. And let the Social Security Administration know if you’re planning to revert back to your maiden name.
Purchasing A House
The interest portion of your mortgage payment and your real estate taxes are tax-deductible. And the homeowners’ exemption may save you some money from years of property maintenance. Just know that the rules to qualify for this exemption differ depending on where you live so
you’ll want to ask your CPA for advice.
It pays to be an environmentally savvy home owner. By improving your home’s energy-efficiency, you may qualify for valuable tax credits.
And, as a homeowner, you might be able to itemize instead of taking the higher standard deductions. A CPA can help you determine if this strategy will work for you.
As a homeowner, you might be able to itemize instead of taking the higher standard deductions. A CPA can help you determine if this strategy will work for you.
Having Children
Raising kids can get expensive, which is why so many taxpayers are more than happy to take advantage of the newly increased child tax credit.
With more people living under your roof, it’s especially important to find out how your personal exemption and standard deduction will be impacted.
And if the time comes to gift money to your child or grandchild, don’t forget to file a gift tax return.
Retirement
The required minimum distribution is what the IRS requires you to withdraw from your retirement account once you reach age 70½, which can be costly if you aren’t prepared. And any distributions – either from your 401(k) or IRA – can impact your tax bill. Talk to your CPA for help minimizing the blow.
Contact Your CPA
There are some great tax-saving opportunities available, but if you aren’t taking a proactive stance, you could miss out on a chance to lower your tax bill or increase the amount of your refund. Consult with your CPA to ensure that you’re getting the most out of your taxes.
By Alan Hill, CPA (Mentor office)
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