Navigating Major Life Changes and Their Tax Implications

By Jamie Scott, on March 8th, 2024

Whether you’re getting married, sending your kids to college, or retiring, most major life events come with significant emotional and financial adjustments. Among the many considerations, understanding the tax implications is crucial for your financial well-being. Below is a brief guide to help you navigate these major life changes from a tax perspective:

Marriage

After tying the knot, you must choose between two filing statuses: Married Filing Jointly or Married Filing Separately (filing Single is off the table). While filing jointly aligns with your new marital status, it’s important to note that some tax credits are either reduced or unavailable for those who choose to file separately.

Buying a House

Purchasing a home is a significant life event that comes with various tax implications, particularly for those who itemize deductions. If you choose and can do so, you may be able to deduct real estate taxes and mortgage interest resulting in tax savings, especially in the early years of homeownership when interest payments are higher.

Having a Baby

If you are having a baby, you may want to consider adjusting your withholdings during the year as you could be eligible for tax benefits when you file taxes at the end of the year. Why wait to get the money? If you know you might be due a bigger refund, reduce your withholdings on your salary and keep more money in your pocket throughout the year.

Credits such as the Dependent Care Expense and Child Tax Credit can also provide significant relief for new parents.

Adoption

For finalized adoptions, eligible families can take a credit in 2023 of up to $15,950. This is a nonrefundable credit that only allows you to reduce your tax. The excess of your credit over your tax in the current year can be carried forward for up to five years and may be used to reduce future year tax liabilities.

Sending Kids to College

For education-related expenses, there are potential tax credits and deductions for tuition, student loan interest, and other qualified expenses including books, supplies, and room and board. The rules regarding who can claim these benefits depend on various factors. Due to income limitations, the parents may not be eligible. And in some cases, it might make sense for the dependent to take their own credits.

Retirement

Are you approaching retirement? If so, it is essential to understand the tax implications of required minimum distributions from retirement accounts and the taxation of Social Security benefits. Planning ahead can help you avoid surprises in your retirement income.

Loss of a Loved One

Lastly, if you’ve lost someone close to you this year, understanding the tax obligations related to their estate can help you navigate this challenging time more smoothly. It is important to be aware that inheritances are generally not taxable to the recipient, but there may be estate tax implications.

Life’s major milestones often come with complex tax implications. Consulting with a tax professional can help you understand these implications and make informed decisions. By staying informed and planning ahead, you can navigate these changes with greater confidence and peace of mind.

If you need further guidance or have any questions on this topic, we are here to help. Please do not hesitate to reach out to discuss your specific situation.

This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.

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Written By

Jamie Crosley June 21

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Jess LeDonne
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Jess LeDonne
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