Whether you’ve just welcomed a new member to the family or shifted into your dream house, your bank is liable to reflect the changes in various ways. Many of life’s most momentous events can affect your finances, some more unexpectedly than others. Ever wondered how significant life events could impact your tax situation? Here’s what you need to know.
#1- How Does Marriage Change the Tax Situation?
Getting hitches often results in welcoming tax breaks. When it comes to marriage and taxes, the first step is to check whether your filing name matches the one on the Social Security card. If you recently moved or changed your name after marriage, you need to change it on all legal documents. Don’t forget to update your name on the driver’s license, insurance, job, and bank as it impacts the taxes.
Discuss with your spouse to decide how you both want to file this year. You can choose ‘married filing separately’ or ‘married filing jointly.’ While filing jointly generally awards higher deductions and lower tax rates, it’s important to consult experts on the matter, as some situations can increase your taxes once you’re married.
#2- Does the Tax Situation Change When You Adopt or Birth a Child?
Changes in your grocery budget and sleep habits aside, bringing a new life into your home can make quite an impact. The Social Security number of a new child is the foremost thing you should worry about when you welcome them into the family. This tiny piece of data is significant as it allows you to claim the child on the next return, including your ability to take advantage of the federal child credit tax or deductions for childcare expenses. Adoptive parents sometimes receive additional credits, such as court costs, adoption fees, transport, and other expenses.
#3 Just Bought a New Home? Here’s How it Could Change your Taxes
If you have not yet settled into itemizing your tax return, take this as a cue to get started. Several new deductions are available for new home buyers, including qualified home mortgage insurance, property taxes, private mortgage insurance, real estate taxes, and certain home improvements, among others. Even if itemizing isn’t your thing, you could still benefit from things like residential energy credits. Purchasing energy-efficient lights or water heaters might seem costly at first, but they may end up paying for themselves in the form of savings down the line.
#4 How Separation, Divorce, or Loss of Spouse Impacts Taxes
If your spouse has passed away and you qualify as a widower or widow, you can claim it in your filing status for up to two taxation years following their death. The standard deduction is typically the same as married jointly filing. When it comes to divorce or separation, you need to figure out how to treat child support, alimony, property settlements, and more on the tax return. Custody affects the tax situation, whereas child support is completely tax-neutral. While many tax credits are available for parents with qualifying dependents, including EITC, Child and Dependent Dare, and Child Tax Credit, with custody, only one parent can claim the child as a dependent on their taxes.
Whether you’ve made a change recently or are planning one for the near future, it’s beneficial to keep potential taxation implications in mind. Regardless of whether the change was carefully planned or surprising, tax planning consultants atNidhi Jain CPA can help you understand your options and advise you about the right next move to make a positive difference in your financial future.
Reach out to us via call or email if you have questions regarding personal or business tax filing. CTC-certified tax accountants at our CPA firm are your best bet.
You can also benefit from our comprehensive personal and business accounting and bookkeeping services, along with payroll services in Bay Area, tax resolution services, tax consultation and filing, and back tax solutions offered to clients in the Sans Francisco, Bay Area, and many other areas across the US. We employ the latest software, such as Accountant WS, and other updated techniques to help you make the most of your hard-earned money.