Your life is constantly changing.
Think back to where you were 5 years ago compared to where you are now. How many important life details have changed since then? When your life circumstances change, often your tax filing requirements change too.
Here are six of the most common life-changing events and how they affect your filing status.
1. I just got married
When you tie the knot, you open up the option of filing separately or jointly.
Occasionally, filing separately results in a higher tax credit, but joint filing is generally recommended.
The IRS rewards joint filing with a number of benefits, including exemptions for having children and combined tax credits.
Make sure you know the benefits you qualify for so you can file accordingly.
2. I just bought (or sold) a house
Buying a house is a huge financial undertaking.
If you are starting out as a first-time homeowner, you may not be familiar with how this affects your taxes.
Along with the property tax and mortgage interest you must pay, there are tax breaks for homeowners designed to make their load more manageable.
If you’re selling a home, there are fees that you can deduct from your overall tax liability.
In either situation, you should remember to update your tax form if your address has changed.
3. I just started my own business
Opening a business of your own can drastically alter your normal tax filing routine.
Holding onto your receipts to track expenses is always critical, but even more so when you own a business.
If you employ others, you’ll need to take their earnings into account as well.
Fortunately, you will have access to some tax breaks specific to business owners.
These include work-related expenses for personal belongings, such as cars and home office equipment.
4. I just had a baby
When you welcome a new family member into the world, you also welcome a lot of new expenses.
As of 2020, a new child qualifies you for a tax credit of $2,000.
Unlike a tax deduction, a tax credit is money you receive directly. It may not make up for the sleepless nights, but it can be a much-needed relief for new parents.
5. I just got a promotion
A promotion is generally a cause for celebration.
Sometimes though, your increased pay rate can actually put you in a higher tax bracket, resulting in a greater amount of tax owed.
If you are promoted or have your salary increased, make sure you know what your overall annual earnings will be.
That way you aren’t in for a rude awakening when it comes time to pay your taxes.
6. I just retired
Some income you earn after retirement is taxable at the rate you paid while you were still employed.
However, certain forms of passive income, such as 401k earnings, are taxed at a much lower rate.
Double-check the source of your income after you retire to make sure you don’t pay more taxes than you owe.
If you’re lucky, you might be able to afford that pontoon boat after all!
Need help filing your taxes in Texas or New Mexico?
Find a Midwest location near you and schedule an appointment with one of our tax specialists. We also accept walk-ins all day, every day.