If you’ve experienced a significant life change over the last year, you’ll probably need to reexamine your tax standing, and you may be eligible for new deductions or tax credits as well. Keep reading to learn which types of life events could make an impact and how these changes could affect you as a taxpayer.
Which Life Events Impact Your Tax Standing
Getting Married or Divorced
Married individuals are required to update their tax filing status from “single individual” to “married filing jointly” or “married filing separately” depending on how income is divided between the spouses. Most couples choose to file jointly to receive a larger standard deduction and, in many cases, qualify for certain tax breaks. However, in instances where one partner earns substantially more than the other or has many itemized deductions to claim, filing separately might be the better choice.
On the other hand, individuals who get divorced must change their filing status from either “married filing jointly” or “married filing separately” to “single individual.” If there are children or other dependents involved, however, the taxpayer(s) still might be able to file as the head of household. Taxpayers receiving alimony are required to report the money received as alimony, while those paying alimony might be able to claim this payment as a deduction.
Becoming a Parent
New parents might be eligible for several tax breaks, including the child tax credit and childcare expenses. They can also claim an additional exemption when filing their taxes, lowering their annual taxable income. Additionally, parents who adopt could be eligible for the adoption tax credit, which was worth up to $13,460 in 2016 for taxpayers who had an income tax liability.
Purchasing a Home
If you purchased a new home during the previous tax year, you might be eligible for several major tax breaks, including a deduction on your mortgage interest and property tax payments. To receive any of these benefits, though, you’ll have to itemize your deductions on a Schedule A Form 1040.
In addition to mortgage interest and property taxes, other possible deductions include points paid on home loans, mortgage insurance, and charitable donations. Overall savings will depend on your tax bracket, but regardless of your annual income, itemizing deductions could potentially save you thousands if you’re a new homeowner.
Searching for a New Job
Looking for a new job can be stressful, but luckily, there are a few tax advantages that may come along with career search. For instance, you can write off certain expenses related to your job hunt on your annual income taxes. Some of these include travel expenses, recruiter fees, hiring movers or renting a moving van, and the costs associated with preparing your resume.
However, these deductions are only available if you’re seeking a new job within the same line of work as your most recent occupation and if you’re currently employed or have only been out of work for a short time. In addition, the amount spent on your job search must exceed the threshold spelled out in a Schedule A Form 1040.
Moving an Aging Parent Into Your Home
Bringing an elderly parent into your home can be expensive, but some of those costs could be tax deductible. As a caretaker to an aging parent, you could be eligible for the child and dependent care credit if your parent lives in your home and you provide over half of their financial support. Also, if you’re responsible for any of your parent’s out-of-pocket medical expenses, you might be able to deduct them from your taxable income if you itemize deductions on your tax returns.
Enrolling in School
Regardless of whether you attended college in the past, you could be eligible to receive tax credits and deductions if you paid money for higher education during the previous year. The Lifetime Learning Credit (which isn’t available for people whose status is “married filing separate”) can provide as much as $2,000 for qualified education expenses, but this credit won’t provide a refund if it exceeds the amount you owe in taxes. There’s also the American Opportunity Credit, which could result in $2,500 for each qualifying undergraduate student on your tax return.
Not Sure About Your Tax Filing Status? S.H. Block Tax Services Can Help!
Major life changes like the ones listed above can lead to some confusion when filing your annual income taxes. If you’re unsure about your tax standing, potential credits or deductions available to you and your family, or the nature of an existing tax liability, please contact S.H. Block Tax Services today by completing this brief form or calling us directly at (410) 793-1231.
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