Getting married? Accepting a promotion? Buying a home? Even during exciting or trying times in your life, it's good to remember that major life events can affect your taxes in many different ways. These events are sometimes unforeseen, but with some careful planning, you can be sure that your tax burden won't catch you by surprise.
If you have or will be experiencing a significant life change this year, we have the information you need to understand how these changes will affect your taxes.
Are you a newlywed or planning on getting married this year? Congratulations! We hate to add more to your wedding planning to-do list, but there are a few ways that your nuptials will affect your taxes. Following these three tips can help you maximize your tax savings.
Alert Social Security of a name change
If you changed your name or plan to change your name after your wedding day, it's important to let the Social Security Administration know by filing Form SS-5.
Refine your withholding
Once you've tied the knot, you and your new spouse might need to adjust withholdings from your paychecks. If you and your spouse both work, your combined incomes may move you into a higher tax bracket, so to avoid being caught off guard by an unexpected tax bill or a huge tax refund, you might need to adjust your withholdings on your paycheck.
Coordinate fringe benefits
Speaking of your jobs, your marriage could open up some new opportunities to save. Draw up a list of the tax-favored fringe benefits at each workplace. If you can be covered by your spouse's medical plan, for example, it might make better financial sense to go on that plan.
For more, see Getting Married.
Having a child
Your new bundle of joy is also a bundle of tax breaks. What you'll lose in sleep, you can gain back in tax deductions. These tips can help you make sure you get every benefit you deserve.
Get your child a Social Security number.
Your key to tax benefits is a Social Security number for your child. You'll need one to claim your child as a dependent on your tax return. You can request a Social Security card for your newborn at the hospital when you apply for a birth certificate. If you don't, you'll need to file a Form SS-5 with the Social Security Administration and provide proof of the child's age, identity, and U.S. citizenship.
Refile your form W-4.
Ask your employer for a new Form W-4 so you can claim your new dependent. Beginning in 2018, dependency exemptions have been replaced with increased child tax credits and a new dependent tax credit that directly lowers your taxes rather than just lowering your taxable income. However, claiming your dependents on your W-4 can reduce the federal income tax withholdings from your paychecks to account for the additional tax benefit.
Claim the $2,000 child credit.
A new baby also delivers a $2,000 child tax credit — and this gift that keeps on giving every year until your dependent child turns 17. If you qualify, you get the full $2,000 credit no matter what time of the year your child was born. The child credit can reduce your tax bill by $2,000 per child.
Contribute to 529 plans.
It's never too early to start saving for your child's future education. When you save money for your child with a 529 plan, those savings can grow tax-deferred. Many states offer tax deductions or tax credits to those who save money with a 529 plan.
For more, see Birth of a Child.
Buying a home
If you are in the market to purchase a home, you'll likely be eligible for some added tax benefits that are not available to renters. At tax time, your house won't simply be your home — it may also be a giant tax deduction.
You might be able to deduct:
For more, see our article on Home Ownership Tax Deductions.
Unfortunately, even in trying times, such as going through a divorce, you'll still need to worry about your taxes. If your divorce is finalized by December 31, you cannot file as married for that year. This will likely result in changes to your tax bracket and deductions. If you have a child and have primary custody of that child after the divorce, then you can likely file as head of household. This distinction will affect the amount of the standard deduction you will receive.
Getting a raise
Did you get a new promotion that comes with a raise? If your promotion and raise will result in you paying more in taxes than you were expecting at the beginning of the year, you may want to ask the boss for a Form W-4 to adjust your withholdings. This can help you avoid a surprise at tax time. To avoid a higher tax burden, you may also consider increasing contributions to your tax-deferred retirement savings accounts or a health savings account (HSA).
TurboTax has you covered
Regardless of what changes in your life, TurboTax has you covered. Our products grow with you and take into account all of the nuances in your tax situation. All you need to do is answer some simple questions about what has changed in your life, and TurboTax handles the rest.
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