When you’re young, typically your parents file taxes for you. As you get older, tax-filing is mildly simple until major life changes come up. While in the midst of life-changing events, you are feeling a variety of emotions. It’s very likely that you aren’t thinking about how these life changes will affect your tax situation, for the better or worse. Check out 6 life events that trigger taxes or a change in your tax situation.
Life events that trigger taxes
You Bought a House
If you recently purchased your first home, or any home for that matter, kudos! Owning a home is a milestone every person dreams of. While there is a bevy of responsibilities that come with owning a home, you can rest easy knowing that a tax break is coming your way. The mortgage interest deduction is the most common tax break filers get when owning a home. There are other deductions available to. They include:
- Deductions from the points/interest you paid when purchasing the home
- Tax credits for energy-efficient homes and appliances
- Property tax and insurance deduction (depending on your area)
You Started a Business
Another major accomplishment is starting your own business. Hopefully you went to a tax professional to help you establish the type of entity your business will be. A sole proprietorship means you are essentially your business. Money comes to you as income and money goes out in the form of expenses.
There are no special filing requirements for a sole proprietor. If you company is a partnership, LLC, or corporation, additional filings are required. The great thing about owning a business is that most, if not all, of the costs of running that business can be deducted.
You Had a Baby
Having a baby comes with plenty of tax breaks for the new parent. The most prominent being that you can claim the child as a dependent. Here are a few other tax credits that come with having a baby:
- Child Tax Credit (if you meet the requirements)
- Adoption Tax Credit (if you adopted)
- Child and Dependent Care Tax Credit
You Got Married
One of the first things a newly-married couple must decide on is if they will be filing jointly or separately. Both options do require the filer to indicate they are married. Filing jointly is the easiest route to go, administratively, that is. However, filing jointly may push the couple into a higher tax bracket. This means more taxes are due from the pair than if they filed separately, assuming a dual-income situation.
You Lost Your Job
Unfortunately, losing your job affects your tax situation. A loss of income likely means a lower tax bracket. You will be taxed on any unemployment benefits you receive (it’s considered income), any severance pay you were awarded, and any payout from sick and vacation time that wasn’t used.
Talk about a kick while we’re down! One positive thing to note is that any job search expenses you incur while looking for work are tax deductible. This is down to the paper and printer used to make copies of your resume!
You Moved Out of State
Be sure to check the residency rules of the state you just moved to. You might have to file as a part-time resident from the state you left and the one you moved to. If you worked in both states for the year, the total income may be used for taxes from both states.
Some deductions you may qualify for include: amount paid to pack and store your stuff and the amount it costs to travel from your old home to your new home. You might also qualify for a deduction on moving expenses if the move is work-related and it passes certain tests like how far you moved and the amount of time you spent on the new job.
Related: 5 Ways to Prepare for Tax Time
It’s important to always think of the tax ramifications (good and bad) that comes with changes to your overall lifestyle. We have some great articles on taxes in our tax archive. Be sure to give them a quick run through if you still have questions or gaps in knowledge. Have you experienced in tax changes because of life events? Leave a comment below to share your thoughts!