How the Most Common Life Events Change Your Taxes
June 12 2018
Life comes at you fast. When tax season rolls around, you may be surprised to find your financial situation has completely changed. And usually, this is due to a major shift in your lifestyle, career, and family. We break down the 5 most common life events and how they affect your taxes below.
Common Life Events
Marriage and Divorce
Getting married comes with merging your life and your finances. As soon as you tie the knot, have a conversation about whether you’ll be filing jointly or separately in 2019. Married couples often file jointly, but it completely depends on your particular situation.
If you finalize a divorce before next year’s filing, you can file as single or head of household. Note that you and your former spouse cannot claim the same dependent, so that should be decided as early as possible. All divorcees must notify the SSA (Social Security Administration) of changed names. The IRS will not process your tax return if your name doesn’t match the one associated with your Social Security number.
Having a Baby
Children may be joyous (and expensive) additions to the family. But they also guarantee a number of tax deductions and credits, such as the Child Tax Credit, additional personal exemption, and the Child and Dependent Care Credit.
Putting Money for Retirement
When you open an account for retirement savings, you’re doing your future self a big favor. Not only during the period you’re able to make withdrawals, but for each tax season leading up to it. Whether you open an IRA, Roth IRA, or 401k, you may qualify for the Savers Credit, which provides credit for the first $2,000 contributed. IRA deductions may also be deductible.
Disaster Relief
If you were a victim of a natural disaster, the IRS offers tax relief for particular disaster situations, including hurricanes and wildfires. When you’re in the process of financial and lifestyle recovery, this tax relief can greatly assist come tax season. Check the IRS website in due course for how tax relief for certain natural disasters are handled.
Freelance Work
The gig economy is still booming, and we wouldn’t be surprised if you’ve partaken in a passion project or side hustle that earns you cash. But how will it affect your taxes? Since you won’t be receiving a W-2 from an online business you started or selling baked goods from your home kitchen, you’ll handle taxes through your own records via a Schedule C, or receive a W-9 from any company you’re hired by for freelance or contract work.
Roll with the Most Common Life Events
Although the above changes can arrive and settle in without a second thought, it’s wise to prepare for tax filing soon after they happen. Now, you can budget, organize, and consult your tax preparer accordingly.
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