Your Life Events May affect your Tax return

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Your Life Events May Affect Your Tax Return

Posted by: Workmytaxes | Jan 11, 2016

There are certain life events that are going to impact how much you pay in taxes. For the most part, these can be positive changes, but changes that you should be aware of nonetheless. Here are just a few examples:

Marriage
This changes your marital status for tax filing – Marries filing Joint or Married Filing Separate. If you get married on 31st Dec at 11.55 pm, you will be considered married for that whole year.

Divorce
You need to change your filing status. If you have no dependent children you can file as a single. If you have at least one dependent child you can file as head of household (providing that you meet the requirements).

If you file as a single, be sure to properly divide dependents, credits and deductions between you and your ex.Dependent exemptions, childcare tax credits, child support payments and alimony may all have tax implications so be sure to look at what you’re eligible for

Buying a Home
Owning a home qualifies you for a bevy of tax benefits. Besides the mortgage interest deduction, you might qualify for other tax-deductible home expenses like points you paid when buying the house or improvements made for medical care. Look into what deductions you might qualify for or talk with a tax professional for help.

If you’re eligible, you can get a home office tax deduction or receive tax credits for energy-efficient houses.

You might also be able to deduct local property taxes paid each year.

Children
With a new baby comes new tax breaks you can take advantage of. You can claim the baby as a dependent, and if you meet the requirements, your child could be eligible for an additional Child Tax Credit.

You might also look into the Child and Dependent Care Tax Credit if you pay a babysitter to watch your kid/s while you work.

Education

Continuing your education after high school could qualify you for tax benefits.

You could qualify for the American opportunity credit to pay for college expenses. It’s only available to students in their first four years of post-secondary school.

You might be able to claim an adjustment to income for qualified education expenses incurred.

If you pay interest on certain student loans you could be eligible for a deduction of up to $2,500 in interest.

You may be able to claim a lifetime learning credit of up to $2,000 for qualified education expenses. This credit can be claimed for education that’s not a degree program.

Moving
Make sure that you check state residency rules. You might have to file as a part-time resident from the state you left and the one you moved to. Among the deductions that you might qualify for: amount paid to pack and store your household goods and amount it costs to travel from your old home to your new home.

You might also qualify for a deduction on moving expenses if the move is work-related and it passes certain tests measuring how far you moved and the amount of time you spent on the job.

Retirement
If you retire early and tap into your retirement account, you could be subject to an early withdrawal penalty.

As you take distributions from your retirement account, it could affect your tax bill. You might have to pay taxes on distributions from your traditional IRA and 401(k)s.

Roth account earnings are taxed when you withdraw as long as you wait to meet the requirements. But rolling your traditional retirement accounts into a Roth is taxable.

Don’t forget about Required Minimum Distributions, which will happen when you turn 70 ½. For tax-advantaged, qualified accounts (except a Roth IRA), you’ll have to take a certain distribution annually.