Your tax filing status helps determine how much tax you owe and what kinds of credits you’re eligible for. Experiencing certain changes in your life can have a significant impact on your tax liability. So it’s important to take that into consideration before filing your tax return. If you’re preparing for tax season, here’s a rundown of major life events that could change your filing status.
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1. Tying the Knot
Getting married can affect your tax situation in a big way. First, you’ll have to update your filing status from single to either married filing jointly or married filing separately. For most couples, filing a joint return makes sense. It gives them a larger standard deduction and allows them to qualify for certain tax breaks that are unavailable to couples who file separately (such as the Student Loan Interest Deduction).
Filing separately, on the other hand, could be the better choice if one partner makes a lot more money or has a lengthy list of itemized deductions to claim. Crunching some numbers can help you choose the right filing status for you and your spouse.
2. Getting Divorced
On the flip side of the coin, getting divorced can also have an impact on your tax filing status. If your divorce has been finalized before the end of the tax year, you may have to file as a single taxpayer. You may be able to file as the head of household if you have a qualifying child or another dependent living in your home.
If you’re receiving alimony, you’ll have to report that on your taxes as income. If you’re paying alimony, you’ll be able to claim it on your tax return as an above-the-line deduction.
3. Becoming a Parent
Having a baby opens the door to multiple tax breaks, including a credit for childcare expenses you pay out of pocket and the child tax credit. There’s a separate tax credit for parents who choose to adopt. Having a child also allows you to claim an additional exemption on your taxes, which can help reduce your taxable income for the year.
4. Buying a Home
There are certain perks that go along with homeownership, including some tax benefits. The mortgage interest you pay each year is tax deductible if you itemize. Additionally, you may be able to deduct mortgage points and property tax payments.
5. Starting a New Job
If you spent part of the year looking for a job or you moved to a different state for a new position, you may be able to write off certain expenses associated with those changes. The IRS places certain restrictions on when you can deduct these expenses. But generally, the kinds of things you can claim include the cost of preparing and mailing your resume, travel expenses associated with looking for work, job placement agency fees and the cost of hiring a moving van.
6. Having an Elderly Parent Move in With You
Taking care of an aging parent can put a strain on your finances. But you may be able to recoup some of the cost at tax time. The child and dependent care credit also applies to certain costs that go along with being a caretaker to an elderly parent. To be eligible for the credit, your parent has to live with you and you have to provide more than half of their financial support. If you itemize, you may also be able to claim a deduction for their medical expenses that you pay out of pocket.
7. Going Back to School
If you decide to further your education, there are several tax benefits you may be able to claim. The lifetime learning tax credit, for example, is a credit you can claim for covering the cost of certain qualified education expenses, such as tuition, fees, supplies, books and equipment. Just remember that you can’t claim more than one tax break for the same expenses in the same year.
When it comes to your taxes, you can’t afford to miss any opportunity to lower your bill or increase the size of your refund. Thinking about how your financial situation may change from year to year can ensure you don’t overlook any valuable tax savings.
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