Tax filing can become something you do without too much thought, especially when not much has changed since the year before. But what if something in your life has changed? What do you do? What changes are important to note in your taxes? Well, there are quite a few life changes to be aware of that will affect your taxes. If you fail to report the changes in your life, you may have difficulties when filing, and nobody wants to deal with the fallout of tax mistakes. Here are some common life changes that will affect your taxes.
Getting married is a life change that most often saves you when tax season comes rolling around. Although there are cases when tying the knot can increase your taxes, usually that is not the case. As a married couple filing jointly, you can claim more deductions, increasing your tax refund immensely.
If you recently had a baby, best wishes are definitely in order, but so are tax updates. Fortunately, expanding your family is another life change that will prove beneficial to your tax refund. Be aware of whether or not you can file as head of household, even if you are single. Doing so can dramatically increase your refund, as can claiming your child as a dependent. Don’t forget to include your newborn on your tax forms!
Buying a home is an expensive purchase that continues to be expensive month-to-month and will definitely affect your taxes. Thankfully, certain details in buying a house can be deducted in your taxes. TurboTax explains that the interest you pay on every monthly payment is tax deductible. In addition to that, real estate taxes that you pay when buying a house are also tax deductible. Even though buying a house is expensive, tax deductions will make sure that you get some of that money back.
If you recently retired, congratulations! You made it! But remember this is one of many life changes you have to note in your taxes. If you are only receiving social security as your income, you don’t have to go through the trouble of filing. However, if you have any other sources of income, which you most likely do, you still have to file your taxes. According to USA Today, “How much you pay in federal income tax is based on your taxable income, which is your income minus any exemptions or deductions for which you qualify. The higher your taxable income, the higher the percentage of your income you may pay in taxes, depending on your income tax bracket.”
Depending on when your divorce becomes final, there are a couple options when filing your taxes. If your divorce will still not be final by December 31st of that tax year, you can either file jointly, or you can file separately as a married couple. However, if you are divorced before December 31st, you can file as single. And if you had a dependent for more than half of that tax year and you paid for more than half of your home costs, you can file as head of household. Lastly, if you pay your spouse alimony, the payments are tax deductible. Whatever your situation, make sure to work out the logistics before filing because divorce is a life change that will certainly affect your taxes.
Starting a business is an exciting life event, but it also makes tax filing a bit more complicated. U.S. News explains that you can deduct as much as $5,000 of your business startup costs if your overall costs were $50,000 or less. As your business expands and is around for longer, deductions can increase and change completely. Because owning a business can make tax filing so complex, we suggest taking your taxes to someone to help, especially in the first year of the business.
Although not a pleasant life change, the death of a loved one is still a change that needs to be documented on your taxes. The year that your spouse dies, you can still file jointly for that year only. Every year following, you must file as single. An estate planning attorney, Beth Shapiro Kaufman, also points out that “If there’s an option to accelerate income into that year, that could be more advantageous than having the income taxed in the following year when the spouse will be taxed as a single individual.”
While these are not the only possible life changes that can affect your taxes, these are some of the most common ones. The most important thing to do when filing is be aware of any of these changes and make sure to document them correctly. Your taxes will thank you even if no one else does!
February 24th, 2020
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