Tax Filing Tips for Life’s Biggest Milestones

Marriage

The first question that a lot of newlyweds ask themselves and/or their tax preparer is – “Can we still file as single?” If you are legally married, the answer is no, and you may not want to anyway given the potential tax implications. Newlyweds have two viable options: to file as “married filing jointly” or “married filing separately.” It’s important to note that the latter option may come with sacrificing certain tax advantages. This includes the Earned Income Tax Credit (EITC), the Adoption Tax Credit, the deduction for student loan interest or child and dependent care expenses.  Other credits are limited to half of what they would be if you file jointly, including the child tax credit or retirement savings contribution credit, all of which are only available to their full extent to couples who file jointly.

Homeownership

Buying a house is already a major expense, which is all the more reason to make sure that you’re not leaving deductions on the table for things like real estate taxes or mortgage interest. To claim these deductions, be sure to itemize them on your tax return, if you are able. Deductions you may be eligible for pertain to mortgage interest, mortgage insurance, real estate tax, and capital gains exclusions upon the sale of your personal residence.

Children

Expanding your family? Expenses like diapers, formula, and baby clothes add up quickly. If you know you will be eligible for a bigger refund at year end given your new little bundle of tax deductions, consider reducing the tax withholdings from your paycheck to keep more money in your pocket during the year.

Other benefits when it comes time to file might include the Dependent Care Expense, which offers credits for payments made to caretakers throughout the year, and you may be eligible for Child Tax Credits up to $2,000 per child.

For those who finalized an adoption in 2023, you may also be eligible for a nonrefundable credit up to $15,950. This credit reduces your tax liability, and any excess of your credit over your tax in the current year can be carried forward for up to five years to reduce future year tax liabilities. However, these credits only apply for human babies, not fur babies. Unfortunately, there are no credits or deductions that can be applied to the purchase or adoption of a new pet, or any expenses related to them.

Higher Education

Whether you are going back to school yourself or sending your kids off to college, you should be aware of potential credits available around higher education. The most common tax benefits include the student loan interest deduction and tuition credits. Credits can be used for expenses like room and board, textbooks, study supplies and more. Just be weary of the income limitations related to tuition and be mindful of the arguments for filing on behalf of the parent or the student. For example, some parents may exceed the income threshold to be eligible for tuition credits, in which case it might make more sense to apply the credits to the dependent’s tax filing instead.

Retirement

As you approach your golden years, it’s a good time to brush up on the tax implications of your chosen retirement plan. A great place to start is to seek answers to questions like – “Does my retirement account require minimum distributions?”, “Should I withhold taxes?” and “Will my social security be taxable?” Seeking guidance from your plan service provider and a tax expert will help to provide you with a full view of your financial future and how you will be taxed when it’s time for you to cash out on your retirement.

Death

As Ben Franklin famously penned, nothing is certain except death and taxes. Losing someone is one of the hardest life events we face, and taxes are likely the last thing on your mind in the wake of a tragedy.  Knowing the right questions to ask when tax season rolls around can make the process a lot less stressful. If you received an inheritance or benefitted from an estate at the loss of a loved one, taxability is dependent on how the assets and their bequeathal were set up. Be sure to seek counsel from a tax professional to review anything included in your bestowal to ensure your accounting accurately for your inheritance. 

Having basic knowledge of how life’s biggest milestones may impact the way you file your taxes is essential to ensuring that tax season goes smoothly for you and your family. That being said, working with a tax professional is a great way to ensure that you’re not missing out on any beneficial deductions or credits this year, and in the years to come. 

===

Jamie Scott is a partner at The Bonadio Group. She partners with small businesses and their owners on tax planning and minimization, strategic planning, and accounting and tax preparation. Her expertise in real estate, partnerships, and multi-state tax issues make her an integral part of our Small Business Advisory team.