There are major life events we experience that not only change our day-to-day but also our taxes. Here’s a look at six of these events and what each could mean for your tax situation.
Getting married is an exciting and big step in your life that also could impact your taxes. It could have an effect in the form of filing status, tax bracket, total taxable income, and address changes, to name a few. It’s important to note that whether you get married on the first day of the year or the last, you will file as a married couple.
There are two options for this: Married Filing Jointly or Married Filing Separately. There is no right or wrong way, just whatever works best for you as a couple. For example, spouses with very different salaries might benefit most from filing jointly. This is because it’s possible that the combined incomes could get you into a lower tax bracket when filing jointly. When you’re determining whether to file jointly or separately, consider your income and what deductions and credits you’re eligible for. A tax specialist can help you find out what those credits and deductions could be.
Keep in mind if you’re changing your name, you need to alert the Social Security Administration before filing for taxes. If the name on your tax return does not match the name Social Security has for your Social Security number, your return might be rejected and any tax refund could be delayed.
On the flip side, your tax situation can also change when going through a divorce. You might need to change your address, your withholdings, and how you handle alimony, child support, property settlements, and more on your tax return. Additionally, this change can have an effect on your tax bracket and deductions. It can also change how you file. If your divorce is finalized by December 31, you cannot file as married for that year.
Growing Your Family
Kids change so much about your life, not the least of which is your taxes. While you may lose some sleep, you can gain back tax deductions. A new baby means a new child tax credit, which will be available every year until your dependent is no longer eligible. If you qualify, you get the full credit no matter what time of year your child was born. Other benefits include 529 plans and credits for education. In order to leverage these tax benefits, each child will need their own Social Security Number.
Buying or Selling a Home
Buying a new home is a big financial step. But during tax time, it may also be a giant tax deduction. You may be able to deduct:
- Property taxes
- Mortgage interest
- State and local tax
- Interest on a home equity loan or home equity line of credit used to buy, build, or substantially improve your home (limits do apply)
Don’t forget about your tax situation when selling your house either. When you decide to sell your current home, you may be eligible to exclude up to $250,000 of the gain ($500,000 for married couples) from the income if the property has been owned and used as your primary residence for any two of the five years prior to selling.
Retirement is an exciting milestone, but it can also significantly impact your cash flow needs. One of the biggest changes is instead of contributing to tax-deferred retirement savings plans, you start tapping into those savings for income and paying taxes at your regular rate. Depending on the type of account you have, taxes could be less of an issue. However, to avoid additional financial stressors and confusion, tax planning strategies are essential to help make sure you stay on track to enjoy your golden years.
Death of a Loved One
Losing a loved one is always difficult. Unfortunately, the tax issues that involve the death of a loved one can also be difficult depending on the relationship, inheritance, and financial strategies used. When a loved one dies, family members usually file an estate tax return. After the inheritance is distributed, each person who receives money must report those inherited assets on their own tax return. Depending on what was inherited, your tax situation can differ.
If you inherited money, there are different tax implications. For instance, if you inherit an IRA, you’ll be taxed on distributions you take. If you inherit property, there’s what’s known as a “step-up” in the cost basis to the fair market value of the property at the time of the loved one’s death. This helps you avoid being taxed on some of the gains on the property.
Whether you’re facing a surprise or a carefully planned event, Gaylor Tax Services is here to assist you in navigating tax implications and planning.
Gaylor Tax Services is Here to Help
These are just some of the life events that can affect your taxes. It’s good to be prepared, but sometimes life happens. So whether you’re facing a surprise or a carefully planned event, Gaylor Tax Services is here to assist you in navigating tax implications and planning. Our experts are here to answer your questions and guide you in the right direction for financial success. No matter what, don’t hesitate to contact us. We are located in Phoenix, Arizona but can assist you anywhere in the state.