Life events such as marriage, having children, buying a home, changing jobs, retirement, divorce, or starting a business can significantly influence your tax obligations and opportunities.

1. Marriage:

Getting married is a significant life event that can impact your taxes in several ways:

• Filing Status: After marriage, you have the option to file jointly or separately. Most couples find that filing jointly reduces their overall tax liability due to lower tax rates and increased eligibility for various credits and deductions.

Tip: Use the IRS’s “Married Filing Jointly vs. Separately” worksheet to determine which filing status benefits you most.

• Tax Brackets: The income thresholds for tax brackets change for married couples filing jointly compared to single filers.
• Credits and Deductions: Marriage can affect eligibility for credits such as the Earned Income Tax Credit (EITC) and deductions like the student loan interest deduction and tuition and fees deduction.

Tip: Consider contributing to a Traditional IRA to reduce taxable income if you file jointly and one spouse has little to no income.

2. Having Children:

The birth or adoption of a child introduces several tax benefits and considerations:

• Dependency Exemption: Historically, you could claim an exemption for each qualifying child, which reduced your taxable income. However, starting from tax year 2018, personal exemptions were suspended under the Tax Cuts and Jobs Act (TCJA). Instead, the Child Tax Credit and other credits and deductions for children became more significant.
• Child Tax Credit: This credit is now more valuable, offering up to $2,000 per qualifying child under 17 years old at the end of the tax year. The credit phases out for higher-income taxpayers.
  • Tip: If the credit exceeds your tax liability, you may be eligible for the Additional Child Tax Credit, which could result in a refund.
• Earned Income Tax Credit (EITC): This credit is designed to assist low-to-moderate-income working individuals and families. The amount of credit depends on income and the number of qualifying children.
  • Tip: Review eligibility requirements annually as they can change based on income, marital status, and number of dependents.
• Child and Dependent Care Credit: If you paid for childcare to enable you and your spouse to work or look for work, you may be eligible for this credit, which can cover a percentage of your childcare expenses up to certain limits.

3. Buying a Home:

Owning a home introduces specific tax deductions and considerations:

• Mortgage Interest Deduction: You can deduct the interest you pay on mortgage loans used to buy, build, or improve your home, up to a certain limit. This deduction can significantly reduce taxable income, especially in the early years of a mortgage when interest payments are higher.
  • Tip: Ensure your mortgage interest and other deductions exceed the standard deduction to make itemizing worthwhile.
• Property Tax Deduction: You can deduct the property taxes you pay on your primary residence and any other real estate you own. This deduction is subject to a combined limit with state and local income taxes (SALT).
  • Tip: Keep records of property tax payments as they are deductible in the year they are paid, not when they are assessed.
• Points Deduction: If you paid points to obtain a mortgage, you may be able to deduct them as mortgage interest, depending on circumstances such as whether the loan was for the purchase or improvement of a primary residence.

4. Changing Jobs:

Changing jobs can affect your tax situation in several ways:

• Income Tax Withholding: When starting a new job, you need to complete a new Form W-4 for withholding purposes. Consider factors such as whether you’re moving to a higher or lower tax bracket and whether you anticipate any year-end bonuses or commissions.
• Unemployment Compensation: If you received unemployment benefits during the year, they are taxable and should be reported on your tax return. You may choose to have federal income tax withheld from your unemployment benefits to avoid owing tax at the end of the year.
• Relocation Expenses: If your job change involves relocating, some moving expenses may be deductible if they meet certain criteria. However, under the TCJA, moving expenses are generally no longer deductible except for members of the Armed Forces on active duty who move due to a military order.

5. Retirement:

Transitioning into retirement can have significant tax implications:

• Withdrawals from Retirement Accounts: Withdrawals from traditional IRAs and 401(k) plans are generally taxable as ordinary income. Roth IRA withdrawals may be tax-free if certain conditions are met.
  • Tip: Plan withdrawals strategically to minimize tax liability and avoid early withdrawal penalties (if applicable).
• Social Security Benefits: Depending on your total income, a portion of your Social Security benefits may be taxable. The taxable amount is determined by a formula that includes other sources of income plus half of your Social Security benefits.
  • Tip: Consider delaying Social Security benefits if feasible, as deferring can increase your benefit amount over time.

6. Divorce or Separation:

Divorce or separation can complicate your tax situation:

• Filing Status: Your filing status is determined by your marital status on the last day of the tax year. If your divorce is not finalized by December 31, you may still be able to file jointly or as married filing separately.
• Alimony Payments: For divorces finalized before 2019, alimony payments are deductible by the payer and taxable income for the recipient. However, for divorces finalized after 2018, alimony is no longer deductible for the payer, and the recipient does not have to report it as income.
  • Tip: Ensure the divorce decree clearly specifies which payments qualify as alimony for tax purposes to avoid disputes with the IRS.

7. Starting a Business:

Launching a business introduces various tax considerations:

• Business Expenses: Deductible business expenses can include startup costs, office rent, equipment, supplies, and business-related travel and meals.
  • Tip: Keep detailed records of expenses to support deductions in case of an IRS audit.
• Self-Employment Taxes: If you are self-employed, you are responsible for paying self-employment tax (Social Security and Medicare taxes) in addition to income tax. Consider making estimated tax payments quarterly to avoid penalties.
• Depreciation: You may be able to deduct the cost of certain assets over time through depreciation, which reduces taxable income.