Throughout the stages of life, there are many major events that can cause a major financial change. In addition to altering your personal bank accounts, some life events can have a significant impact on how you file taxes. Being aware of this impact before, during, and after the event can help minimize confusion around your taxes in Denver.
The following life events are the main milestones that can lead to tax changes.
While you likely know this already, getting married will change how you file your taxes. As a married couple, you can opt to either file as “married filing jointly” or “married filing separately”. Additionally, as you file after getting married, make sure that your filing name is identical to the name on your Social Security card.
Even if you got married on the very last day of the year, in the eyes of the IRS, you were married for the full year. This is important to keep in mind as you file as a newly married couple.
The expense of receiving an education can earn you various tax credits. One example of this applies to those who are paying off student loans. In this case, you can take a deduction of up to $2,500 of your student loan interest on your tax return. Tax credits for students including The American Opportunity Credit and the Lifetime Learning Credit can also help you save on taxes.
If you received professional designations or certifications, the cost to complete them may qualify as a business expense if you’re self-employed.
- Having a Child
Having a child is a major life event in many ways. After you have a child, in addition to starting a new phase of life, there will be changes to your taxes to consider. With the Social Security Number of your new child, you’ll be able to claim him or her as a dependent on your tax return. It will also allow you to make use of various federal deductions and child tax credits. Some childcare expenses can qualify as deductions on your tax return.
Adopting a child will also have a large impact on your taxes. Those who choose to adopt can qualify for other tax credits such as transportation costs, court expenses, and the fees associated with the adoption process.
- A Job Promotion or Change
If you earn a promotion at work, you could get a raise that will alter your tax bracket. The raise could place you in the bracket above where you were before. This will increase the amount of taxes that you owe. So, after a promotion, it may be worth altering your W-4 withholdings to suit your new situation. You may also change your withholding if you change jobs so that it suits your preferences. If you opt to withhold less from your paycheck throughout the year, you’ll get a smaller tax refund but have more money in your pocket throughout the year.
- Purchasing a Home
If you recently purchased a home, you’re likely to qualify for new tax deductions. These may include real estate taxes, mortgage interest, and mortgage insurance premiums. Residential energy credits may also provide savings on your next tax return.
As a new homeowner, you may want to make renovations to your home so that it fits your family’s needs perfectly. It’s important for homeowners to know that home improvement expenses can be tacked onto the home’s purchase price if it’s sold down the line. This purchase price is used to calculate, for tax reasons, the cost basis in your home.
- Becoming a Widow or Widower
If you recently went through the death of a spouse, you can file as a widow or widower for two tax years after the death. The window status provides a standard deduction that’s twice the amount of the single status deduction. Note that this filing status isn’t available in the same year as the death of your spouse.
McGuire Law Firm provides IRS representation and tax law services. Contact us today for your legal tax needs.