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Major Life Events That Can Change Your Taxes
April 2, 2021
Your education and perseverance should have prepared you well to take on life’s challenges as they come. But in the course of these ups and downs, you’ll also have to deal with the elephant in the room, the TAXES. Major life events that can change your taxes. You don’t necessarily need to be a tax expert to be prompt and accurate with taxes. But some awareness could help you make wise decisions in a timely manner.
Let’s give you a quick overview of the milestones that will inevitably change the way you file your income tax returns.
1. Going to College:
When you choose to go for education after high school, you’ll be entitled to some tax benefits. Most college students are allowed a deduction of education expenses including tuition fees.
Some students opt to pay their college fees through student loans. The interest paid on these loans can also be claimed as a deduction up to a certain limit.
If you choose to pursue a course other than a full-time degree course, you can also seek a lifetime learning credit for qualified education expenses.
2. Getting a New Job:
With a new job, you get the opportunity to adjust your tax withholding. When you change jobs and cash the funds in your retirement account, you’ll have to pay tax on it. If you’re moving to a new state, you’re allowed deductions for the moving expenses as well. But the law differs from state to state. So, if you’re relocating to California for a new job, a California Tax Attorney would be able to give you specific advice regarding this.
3. Getting Married:
Being married gives you an opportunity to opt for a new filing status for income tax. You can either file your tax return jointly with your spouse or separately. Both filing options come with a set of benefits and restrictions. You need to choose your filing status based on your personal circumstances and convenience.
If you or your spouse has decided to go for a name change or change of address, you’d need to notify the IRS office before the tax filing date, so that their records can be updated.
4. Owning a new House:
Buying a house entitles you to a host of tax benefits and tax planning opportunities. The interest you pay on a mortgage, for instance, qualifies for a deduction. You can also find opportunities to claim deductions for certain expenses incurred in buying the house or home improvements. You may also be able to earn a tax credit for making the new home energy efficient and deduct the annual property tax too. Ask your tax consultant to advise you regarding these tax-saving opportunities.
5. Starting a Family:
When you welcome a new baby to the family, you’re also allowed some benefits at the income tax ends. You can claim Child Tax Credit in your tax return. But for this, make sure you’ve registered your child for Social Security. Some tax benefits also extend for adopted children, and children from a previous relationship.
6. Getting Divorced:
This is also added in major life events. If you get a divorce, you’ll have to notify the IRS about the change in your filing status. As you part ways with your spouse, you’ll have to settle down for dividing credits, deductions, and dependents in relation to your taxation. There may be tax implications for the alimony too. You’ll have to consider all these factors in your next income tax filing.
7. Losing your Job:
If you lose your job and are stuck unemployed or in a job with inferior pay, you’ll automatically qualify for lower tax rates corresponding to your earnings. If you’re receiving unemployment benefits under the government scheme, you’ll have to pay tax on it. Also, any money you receive from the previous employer due for your accumulated leave encashment will be taxable.
A retirement plan is a fairly common tax planning strategy. It is also a major life events of any person, that can changes the whole life asd well. But you will have to look out for adjustments, depending on when you decide to cash your retirement account. For example, early encashment could attract some penalty. Even if you use the retirement account for distributions, or for paying expenses that don’t qualify for the deduction, you might end up paying income tax on the withdrawals too.