Getting married, buying your first home, welcoming your first child. Just as these milestones signify major changes in your life, they also call for significant adjustments to your taxes. Whether you’re planning for retirement or expecting a new addition to the family, it’s essential to know what these significant life events mean for your financial life and how they could impact your next tax return through increases, deductions, or both! To help you out, we’ve compiled an overview of what some of life’s major moments mean for your taxes.
Tying the knot presents you and your partner with the option to file your taxes either jointly or separately. The “better” option is dependent on you and your partner’s financial situation and preferences. For example, filing jointly can increase your standard deduction. However, filing separately could be a viable option if you or your spouse owe back taxes. It’s important to note that if you’re married on or before December 31st, you are considered married the entire calendar year for tax purposes, so be sure to keep this in mind when filing your first tax return as a married couple.
The arrival of your new bundle of joy comes with some significant tax breaks. Notably, the Child Tax Credit and deductions on qualified childcare expenses. For those welcoming a child through adoption, there is an Adoption Tax Credit to offset costs and fees associated with the process. As the years pass by, your family will be presented with other tax credits, such as those regarding education and childcare, so it’s essential to keep these in mind as you plan your family’s financial future.
Buying your first home is a big financial step. Before you grab the keys, it’s important to consider the tax implications and benefits that come with these kinds of purchases. For example, when you buy a house with a mortgage, you can deduct any interest you’ve paid on the loan. You’ll also want to give careful consideration to mortgage interest, state and local taxes, and certain home modifications that can be claimed on your next tax return.
Divorce signifies a significant shift in both your personal and financial life. Like getting married, if you divorce by December 31st of the calendar year, you must file as single for the corresponding tax year. Filing as single means lower standard devotions and tax brackets. Before filing, it’s essential to ensure that deductions, credits, and dependents are divided and organized between you and your former spouse. It’s also important to note the “head of household” option; if you have been supporting a dependent for more than half of the year, you can receive a lower tax rate.
As you plan for retirement, it’s important to note how your taxes will change. For example, you move to other income sources such as social security and personal savings when you retire, and it’s important to note that social security benefits can be taxable if your income is high enough. Likewise, contributing to a 401k plan can result in rewardable tax deductions, but beware of the taxes that come with taking money out of your fund when retirement nears.
As you continue to plan for 2022, check out our previous blog post on Budgeting Tips for Your Next Vacation. In addition, if you need personalized financial advice, our team is always here to help—contact us today to book an appointment!