10 Major Life Changes and How It Affects Your Taxes
Having a baby? Getting married? Moving for a job? Major life milestones run the gamut of emotions — from thrilling and exciting to scary and sad. These life-changing events are even more unnerving when they're unexpected, which might cause you to forget about how they'll impact your taxes.
Major life changes come with a host of tax implications that will impact how you file, your benefits, and the tax bill you might receive. That's why it's important to understand how big life events might affect your taxes.
Here is a list of some of the tax changes that you should watch out for should you experience one of these major life milestones, like buying a house or getting a divorce.
- You will have to change your filing status. If you tied the knot before midnight on December 31, 2013 you have to file as either married filing jointly or married filing separately.
- You can claim a new tax exemption and potentially adjust your paycheck withholding.
- If you changed your last name, you'll have to call the Social Security Administration to notify them.
- You will have to change your filing status. If you have no dependent children you can file as a single. If you have at least one dependent child you can file as head of household (providing that you meet the requirements).
- If you file as a single, be sure to properly divide dependents, credits and deductions between you and your ex.
- Dependent exemptions, childcare tax credits, child support payments and alimony may all have tax implications so be sure to look at what you're eligible for.
- Owning a home qualifies you for a bevy of tax benefits. Besides the mortgage interest deduction, you might qualify for other tax-deductible home expenses like points you paid when buying the house or improvements made for medical care. Look into what deductions you might qualify for or talk with a tax professional for help.
- If you're eligible, you can get a home office tax deduction or receive tax credits for energy-efficient houses.
- You might also be able to deduct local property taxes paid each year.
- With a new baby comes new tax breaks you can take advantage of. You can claim the baby as a dependent, and if you meet the requirements, your child could be eligible for an additional Child Tax Credit.
- Make sure you get your child's Social Security Number if you're claiming him or her as a dependent on your tax return.
- If you adopted a baby, you can take advantage of an adoption tax credit. Just be sure you have the child's Social Security Number.
- You might also qualify for the Earned Income Tax Credit, which is designed to help low and middle income earners.
- You might also look into the Child and Dependent Care Tax Credit if you pay a babysitter to watch your kid/s while you work.
- Continuing your education after high school could qualify you for tax benefits.
- You could qualify for the American opportunity credit to pay for college expenses. It's only available to students in their first four years of post-secondary school.
- You might be able to claim an adjustment to income for qualified education expenses incurred.
- If you pay interest on certain student loans you could be eligible for a deduction of up to $2,500 in interest.
- You may be able to claim a lifetime learning credit of up to $2,000 for qualified education expenses. This credit can be claimed for education that's not a degree program.
- A loss in income might mean that you'll find yourself in a lower tax bracket.
- Remember that unemployment benefits are taxable because it's considered income and must be reported on your federal tax return.
- You might also be taxed on any severance pay you received, as well as any payment you received for accumulated vacation or sick time.
- Your previous company is required to provide you with your W-2 by January 31 of the year after you leave the company.
- Also, job search expenses are tax deductible.
7. Getting a new job
- A new job means that you can adjust your income tax withholding.
- If you had a retirement plan with your last company, you'll have to decide what to do with it when you land a new job. Cashing in on your plan is likely taxable.
- If you're relocating for a new job, you can deduct some of the moving expenses that your new employer isn't paying for (see below).
- Also, you might be eligible for special employee tax deductions.
- Make sure that you check state residency rules. You might have to file as a part-time resident from the state you left and the one you moved to. Among the deductions that you might qualify for: amount paid to pack and store your household goods and amount it costs to travel from your old home to your new home.
- You might also qualify for a deduction on moving expenses if the move is work-related and it passes certain tests measuring how far you moved and the amount of time you spent on the job.
- If a federal disaster hits, you might be able to get a tax extension depending on the extent of the damage.
- You can claim disaster-related casualty losses on your tax return and may deduct disaster-related personal property losses not covered by insurance. If you claim the loss for this year, you may get greater tax savings. If you claim the loss for last year and file an amended return, you'll get an earlier refund.
- If you retire early and tap into your retirement account, you could be subject to an early withdrawal penalty.
- As you take distributions from your retirement account, it could affect your tax bill. You might have to pay taxes on distributions from your traditional IRA and 401(k)s.
- Roth account earnings are taxed when you withdraw as long as you wait to meet the requirements. But rolling your traditional retirement accounts into a Roth is taxable.
- Don't forget about Required Minimum Distributions, which will happen when you turn 70 ½. For tax-advantaged, qualified accounts (except a Roth IRA), you'll have to take a certain distribution annually.
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This article originally appeared on MyBankTracker.com
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