Major Life Events that Impact Taxes
Sep 12, 2023
Life is full of transitions — from getting married to buying your first home to retiring — that can affect more than just your daily routine. These milestones can also have a major impact on your taxes.
Getting Married
When you agree to love, honor, and cherish one another, you’re also agreeing to a change in how you handle your taxes. Filing taxes jointly can lower many couples’ overall tax obligations, but not in every case. Living happily after means determining how to file, handling a legal name change, and more.
Buying or Selling a Home
When buying a home, you may be able to deduct your mortgage interest, as well as state and local real estate taxes if you itemize. If you paid for points, you may also be able to deduct those. Certain limits and rules apply, so check with a tax professional for personalized guidance.
When selling your home, you probably hope to make a profit on the sale. But those gains could be taxable. If you meet certain criteria, you may be able to exclude up to $250,000 in gains ($500,000 if you’re married filing jointly) from your taxable income.
Other tax considerations for homeowners include home office deductions if you work remotely, credits for making energy-efficiency improvements, and special credits for first-time homebuyers.
Changing Jobs
Whether you get a promotion or lose a job, a change in employment will most likely result in a change to your income, which can affect your taxes. A new position could put you in a different tax bracket and affect your overall tax liability. Other considerations include:
- If your new job requires you to relocate, you may be able to deduct certain moving expenses; and
- If you’re required to wear uniforms or get specialized training, those job-related expenses might be deductible.
When you start a new job, check your paycheck withholding to make sure everything is in order. An error could cost you big-time down the line.
Having Children
Newborns bring countless changes to sleep schedules, energy levels, and — yes — even tax liabilities. Parents may be able to take advantage of the Child Tax Credit or Earned Income Tax Credit to reduce their tax burden. In addition, setting up a 529 college savings plan early has long-term tax advantages for you and educational benefits for your kids.
Getting Divorced
Divorce is emotionally and financially stressful, and taxes are one piece of the puzzle. Alimony, child support, and division of property can all change your tax situation, even putting you in a different tax bracket. Post-divorce, your filing status will change. If you have children, you might be able to file as head of household.
Retiring
Many adults save for retirement through IRAs or 401(k)s, but what happens when you reach that milestone? When you start drawing money from your retirement accounts, that income is taxed. Depending on your age, you may face penalties for early withdrawals. Your Social Security benefit may also be taxed.
The good news: After age 65, the standard deduction increases, and you may be eligible for the Credit for Elderly or Disabled.
More Life Events with Tax Implications
Other life events affecting yourself, a spouse, or a dependent that could impact your finances include:
- Becoming disabled
- Recovering from a disaster
- Dealing with the death of a loved one
To discuss how to manage your finances effectively in the wake of these or other transitions, please contact us. Our tax professionals can provide personalized guidance based on your specific circumstances. From financial planning to tax preparation, we can help you navigate the financial impact of life’s events, both big and small.
