A variety of different life events can have a big effect on your taxes. Different situations, life stages, or events can affect how your earnings are taxed. You may get to lower your tax bracket, qualify for a tax credit, or take advantage of other attendant benefits.
So what events can affect your taxes? Here are some:
Marriage allows you to file your tax as " married filing jointly" or "married filing separately". This significant change of status may require a change of name for one of the mates, and consequently, the change will appear on all legal documents such as insurance and driver’s license to name a few.
Your tax bracket may also change since you'd no longer file as single.
A lot will change for your taxes in this situation, and even applies if it is a separation. The address and name may require changes, and you may need to get familiar with child support and alimony arrangements. As for alimony, since January 2019, if you pay alimony you can't deduct it, and the receiver doesn't have to report it as a taxable income.
Child support does not affect taxes both ways -- as the payer or receiver. As for child custody, only one parent claims "child dependent" on taxes. If you happen to have the custody of a child, you can qualify for tax credits such as The Child Tax Credit, Child and Dependent Care, and the EITC.
Change of Job or Loss of Job
A change of job could be a switch to a new job, an additional job, or self-employment. When any of this happens, this is in an event that can affect your tax because your income can either increase or get lower. It's best to check if your employer is withholding the right amount. If you handle multiple jobs, endeavor to file correctly based on current income. If you are self-employed you may get to write off certain business expenses such as home office space or other essential expenses as stipulated by the IRS.
However, if you lose your job, you may qualify for unemployment privileges of which you'll use the 1099-G form to record. According to the IRS, unemployment benefits are taxable since they are still income.
Retirement plans for the most part are tax-free as long as you follow the annual saving limit. However, since there are various IRA plans, such as ROTH IRA, the condition attached may vary in terms of how much is taxed. Note that for most if not all retirement plans, an early withdrawal translates to a penalty charge which must be paid to the IRS.
If you purchase a property, especially for the first time, you are eligible for a couple of tax breaks. Your expenses as a homeowner may include property tax, mortgage, local tax, and certain home improvement. All of these can be claimed on your tax return for a limited time.
The IRS offers certain tax relief for victims of natural disasters to relieve their burden. The IRS takes note of regions struck by disaster or places specified as disaster-prone and allows individuals from such places to claim losses when filing tax for the year. Additional benefits come as financial aid from the IRS or other organizations.
Taxes are never static due to various conditions on the part of the payer or guideline improvement by the IRS. Ensure to keep up with information released from the IRS. Alternatively, consult a professional regularly to ensure you're filing your taxes correctly.
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