Life Events That Equal Big Tax Deductions
Everyone loves big tax deductions and more of them can equal fewer taxes paid or a larger refund. Often life changing events, such as a new marriage or a baby, can wind up having a big impact on someone's taxes. Here are some details on these and other life events that may impact your return:
First, marriage. No matter if a couple marries on the first day of the year, the last or somewhere in between, they will now file as a married couple. There are two options for this Married Filing Jointly or Separately. Many couples decide to consolidate paperwork and file jointly. Besides simplifying paperwork this also may lower the collective tax rate for the couple, especially if there is an income disparity between the two. This also opens up additional tax deduction possibilities. Some examples of these are the Earned Income (EDIC) and Child Dependent Care Credit.
A real estate purchase is another event which can trigger a change. If a home (residence) was purchased during the year, the interest that's paid on the mortgage can be written off. Conversely, if a home was sold the net profit proceeds from the sale may be tax exempt assuming they do not exceed $250,000 if single or $500,000 if married. This exemption can only be taken if the person or persons owned and lived in the home during the last five years and for at least two years prior to the sale.
Infographic on Life Events Which Impact Taxes
Getting a new job also means potential differences as well. Work-related tax deductions that are deemed to be ordinary expenses and necessary can be deducted. This may include, but is not limited to, expenses such as professional dues, required work clothing even depreciation on a personal computer used for work. Relocation related to work can also mean big deductibles. This can include fees paid to a recruiter/employment agency, moving expenses and other transportation expenses.
Welcoming a new bundle of joy also allows a person additional saving opportunities on their return. As of 2013, $3,900 per child to be exact. There is also the EDIC and Child Care Credit, both mentioned earlier, which may now apply. These tax deductions and credits also apply to single individuals with a new child who file using the Head of Household status.
Credits are also available for qualified expenses in association with an adopted child. As of 2013, a tax filer may receive up to $12,970 per child. There are specific rules for when the credit can be taken based on if the adoption process is completed in its entirety and if it was a domestic (a child of US citizenship or residence) or a foreign adoption (a non-citizen or non-resident). It is also noteworthy to mention that as of the tax year 2011 this is a non-refundable credit.
Other events that may affect your taxable income include ending a relationship because of a divorce or death of a partner. In both cases, you will have to update your status and name change with Social Security Administration. You may also qualify for education credits if you or your qualifying dependents were enrolled and paid tuition. Some form of tax relief is also available for residents in areas declared disaster zones and for those who suffered significant losses due to theft. One of the more important factors that may affect your taxes has to do with whether or not you signed up for the required health insurance through your employer or through the marketplace.
As your life evolves it may be possible to save thousands of dollars each year by keeping up with deductions that may become applicable to you. Our software works with every filer to help identify these and all other possible savings on every returns.