Love and Marriage…and All the Other Events That Affect Your Taxes

We know, we know. When you experience a significant life event, the last thing you think is, “How will this impact my tax return?” And while we hate to put a damper on the party, it’s important to consider the effects of events like getting married, having a baby, and even losing your job because, spoiler alert, they all change how much you receive or owe come tax time. So check out what you need to know before you tie the knot, bring home a bundle of joy, accept a new job offer, and more.

Getting Married

If you’re about to walk down the aisle, congrats! While you’re busy deciding on buffet vs. sit down meal and should you invite Uncle Larry if there’s an open bar, there’s one more important choice you and your partner need to make: married filing jointly or married filing separately. Usually, filing jointly will provide lower tax rates and higher deductions, but your marriage can actually increase your taxes in some cases. Also, keep in mind that your status will apply even if you were married in December—the IRS views you as married for all of the filing year. Make sure you talk about what you each typically get as a refund or owe.

Or Divorced

As if divorce isn’t challenging enough, there are tax considerations here as well. Of course, you’ll most likely be changing your personal information, such as your name, address, and withholdings, but you may also need to consider child support and custody too. The good news is that child support, whether you pay it or receive it, has no impact on your taxes. However, only one parent can claim a child as a dependent, which will directly affect the tax breaks that apply to you—mainly the Child Tax Credit, Child and Dependent Care Credit, and the Earned Income Tax Credit (EITC).

Having a Child

Kids sure can be expensive, but thankfully there are a few tax credits for parents to take advantage of. In addition to the ones listed above, adoptive parents may qualify for the Adoption Credit, and those with students pursuing higher education can check out Education Credits. Plus, if you’re a single parent, you may be able to file as Head of Household, which translates to more tax benefits than filing as single.

Starting a New job

The biggest tax consideration when beginning a new job is making sure all your paperwork is filed correctly. So while you may be swimming in employee handbooks and HR documents, take time to calculate the correct amount that should be withheld from your paycheck. And this isn’t a set it and forget it moment—you should update your W4 anytime a significant life event occurs.

Or Losing a Job

You didn’t work last year, so you don’t need to pay taxes, right?! Wrong. If you collected unemployment benefits, that income is taxable and needs to be reported if you meet the minimum requirements for your filing status. When the new year rolls around, keep an eye out for Form 1099-G, which is how you’ll report these benefits.

Retiring

Saving for retirement will not only pay off in your golden years, but you could see a tax break during the years you contribute to an IRA or other retirement account. Just keep in mind that if you make an early withdrawal from a retirement plan, you may be hit with a tax penalty.

Buying or Selling a Home

In this market, buying a home is no easy (or cheap) task, so you’re probably looking for ways to recoup some of the costs. There are lots of tax deductions to take advantage of, such as paid points, mortgage interest, and real estate taxes. And the same goes for sellers too. Expenses such as selling costs and home improvements or repairs can all put a little cash back in your wallet.

If you’re experiencing one of these major life events, not only would we like to celebrate/commiserate with you, but also help you figure out all of the taxes that go along with it. So schedule an appointment with us to get started.