Did you know that only 1 in 5 millennials knew that big life events such as marriage, having kids or buying a house can affect taxes? This is according to a recent survey by H&R Block, which also found that even though almost 3 in 4 millenials had recently gone through some of these major life events, they still didn’t know that it could impact what they owed or the refund they could be expecting. This means that 72% of those surveyed were going to miss out on potential money back.
Life events affect more than just millennials though. Various events that take place throughout your life that may impact your taxes. Here are some common life events that every taxpayer should be aware of.
Moving to a New State
Deciding to move to a new location can be an exciting time in your life. Unfortunately, it can make your taxes a little more confusing as there are a number of things to take into consideration. One common example is that you’re moving for work. If your employer is moving you to another state, moving expenses could be tax free or it might show up on W-2 as part of taxable income. Another situation is if you decide to move to another state and rent out your house. More than likely you’ll have to file an income tax return for your old state as well as your new state. Moving to a new state will almost always mean having to file taxes in two states, which is important to be aware of.
Getting Married
Most people probably aren’t thinking about their taxes when it comes to tying the knot. After the festivities, though, don’t forget that filing jointly with your spouse can actually bring about some welcomed tax breaks. Joint filing typically means you might see lower tax rates and a bump when it comes to deductions. However, there are some situations, known as the “marriage penalty,” where getting married actually might increase your taxes. It’s best to check with a professional to make sure your filing is accurate.
Starting a New Job
You might not have thought about it when you signed on to your new job, but this life event can significantly affect your tax return. One thing to keep in mind are the job search expenses you accrued that you may be allowed to deduct on your Schedule A. When you get a new job, you’ll have to fill out a W-4 form for your new employer. Make sure you go over this carefully as the number of allowances that you claim will affect the amount that will be withheld from every check. Starting a new job will also mean changes to your 401k plan. If you changed jobs recently, it may be a good idea to reach out to tax preparer.
Buying a Home
When you finally get to walk across the threshold of your new home, remember all the tax breaks you can now take advantage of. There are a number of tax deductible expenses that a new home owner can claim such as mortgage interest, which is one of the most common forms of deductible expenses that a homeowner can claim. Taxpayers who bought a home may be able to benefit from itemizing their deductions, but only if they are bigger than their standard deduction. The new 2018 tax code however, has added a new cap to common itemized deductions. Other things to consider are real estate taxes, points, mortgage insurance premiums, tax-free profit on sale, adjusting your withholding and more. Consider contacting a tax preparer to make sure you don’t miss out any deductions you’re now qualified for as a home buyer.
You Started a Business
Congratulations! You’ve made your dream come true by starting a small business. There are plenty of stressors that come with starting a business as well as some big wins. However, starting a business can make filing your taxes more complicated for a variety of reasons. Some of the things you’ll have to take into consideration include determining the business entity your business falls into, the accounting method that was used to keep records, as well as the various tax breaks that may be available to you. On the flip side, starting your own business might actually mean you’re on the hook for various self-employment taxes. One significant way a tax preparer can help a new business owner is helping the client decide between a Sole Prop and S-Corp, that is, sole proprietor or an S corporation as these will have different tax implications. While it can be exciting to finally start your own business, it’s important to be aware of all the tax implications that come along with it. Hiring a professional may help you avoid any unpleasant surprises this filing season and can help you.
Having Kids
You’ve made the decision to have kids, which is not only great news for your family, it can also mean good things for your taxes. This is because having kids opens up a whole new set of tax breaks that weren’t accessible before. Claiming dependents on your taxes is another way to greatly reduce the taxes that you owe. Did you know there is even a tax credit that you can receive up to $2000 if you had a baby within the last year? Growing your family allows you access to a whole number of potential tax benefits. With the help of a tax preparer, you can understand all the different credits and deductions that are now available to you and your family.
Separating or Getting Divorced
A separation or divorce can often be a painful experience. The last thing on your mind is probably how this will affect your taxes. While this may be the case, getting divorced does have implications for the way you’ll be filing your taxes. For example, is alimony involved? What about child support? And who gets to claim the dependents? Are you now qualified for innocent spouse relief? These are all questions that you’ll now have to consider and determine whether or not these are something that affects you. Be aware though, the new Tax Cuts and Jobs Act has also made changes when it comes to alimony and other factors that play a role in divorce. A professional will be aware of all the ways the Tax Cuts and Jobs Act may affect your divorce so that’s one less thing you’ll have to worry about during this complicated time.
Experiencing a Hardship or Death
Unfortunately, there can be difficult times in your life that can affect you and your family. Not only can hardships be emotionally trying, they can be financially expensive as well. One example is a family making the decision to take penalties from their IRA in order to secure the funds needed for health care costs such as cancer treatment. For such circumstances, you may be eligible for a hardship waiver. In the event of a death in the family or of a spouse, it is up to the executor to file the final tax return for the deceased, which is required by the IRS. Some things to consider include possible state inheritance taxes or federal estate taxes that will still be due.
These are just some common life events that will affect your taxes, there are a number of other events that can affect your taxes as well. Determining which life events will affect your taxes and which ones won’t is another part of the process. While various milestones in your life can be exciting, or even painful, don’t forget to consider how these events can change the way you manage your taxes. Just like life, taxes can be complicated, especially with new legislation that will be affecting your taxes in unforeseen ways. To be aware of all the ways taxes will impact your life events, consider hiring a professional tax preparer. That way, you can spend more time enjoying the new changes in your life and less time worrying about the nitty gritty of taxes.