4 Milestones That Affect Your Taxes
In many ways, life is what happens between the major milestones. Whether the defining moments in your adult life are good or bad, expected or unexpected, there are some milestones that affect your taxes. While we can’t necessarily help you plan for the curveballs that life will throw your way, we do have some advice that can help you prepare for the impact these events can have on your tax situation.
One of the most important moments in your life will be the day you get married, for many reasons. Not only will your personal priorities in life shift, but your financial situation will face an inevitable sea change, including your tax filing status. Usually, it makes the most sense for newlyweds to file jointly, because it provides the most tax breaks to couples. In fact, 2020 tax brackets show a mere 10% tax on the first $19,750 of taxable income for couples who filed jointly. Furthermore, TurboTax reports that the IRS offers jointly filing couples one of the largest standard deductions each year! However, if you choose to file separately, you and your spouse will have a higher tax responsibility. That said, there are some instances in which filing separately can make more sense. For instance, if you and your spouse have high or unpaid student loan debt or one of you has unusually high medical bills, it may behoove you both to file separately. Additionally, some married couples choose this route to avoid the liability of taxes on their spouse’s income in the event of a divorce. Whichever option you choose, it’s a good idea to seek the advice of a trusted CPA.
2. Becoming a Homeowner
An exciting milestone in life is buying your first home. It’s a tangible symbol of your success and gives you that wonderful feeling of moving up in the world. Buying a house is also a major financial move, especially for first-time homeowners. More likely than not, you’ll take out a mortgage to help pay for your first home. The good news is that you may now be eligible for some homeowner tax breaks, such as a property tax or mortgage interest deduction! In addition to these tax breaks, you could even enjoy a tax credit with a few home improvements for an energy efficient house. Bear in mind that you will need well-documented proof of these expenses in order to qualify for these tax breaks, so it’s important to keep an organized record. You may also want to work with a CPA who can help you identify any additional tax planning opportunities for you to save.
For the Unforeseen Milestones That Affect Your Taxes
Believe it or not, even the unforeseen milestones in life can be planned for ahead of time, with the right tax advisors in your corner. From an unexpected move or job change, to coming into some family inheritance money, we can build the best tax strategy for you!
3. Having Children
Another momentous occasion in life is starting a family. Not only is life as you know it over, but your tax liability will be increase significantly now that you will have to claim an independent on your tax return. That said, there are some credits you will be eligible for, such as the Child Tax Credit (CTC), which is a partially refundable credit worth $2,000 for each qualifying child. Claiming this credit will help reduce your income tax bill. Furthermore, it could even increase your federal tax refund! In addition to the CTC, you could qualify for tax credits for dependents who don’t qualify for the CTC, childcare, and even college tuition down the road. There are even tax credits for adoption expenses! Whatever your situation may be, the right CPA can help you identify the best tax planning opportunities for you and your family.
In most cases, your social security benefits will not be enough to retire comfortably. As you plan for retirement, it’s important to understand that your retirement years will be taxed but investing in a 401(k) or traditional IRA will reduce your yearly income tax bite. Additionally, you should also expect the government to take back some of your social security money for income tax and Medicare coverage. Ideally, you won’t be making withdrawals from those retirement accounts until you turn 70 and ½, leaving you with plenty of years in the meantime for strategic tax planning!
Plan for The Milestones That Affect Your Taxes
While the best laid plans of mice and men are notoriously flawed, the properly laid plans of an experienced tax advisor can make all the difference for you and your family. For the many milestones that affect your taxes, our tax advisors have just as many solutions to help you save more of your income. If you are ready to start planning ahead with our tax experts, give us a call at (972) 771-6707 or visit our website!
Plan Ahead with Lifetime
From the wonderful surprises to the unexpected bumps in the road, life is much easier when you have someone to help you prepare for it, the best you can. If you’re ready to plan ahead for your own milestones, our tax advisors are ready to help!