Life is filled with milestones: be it a wedding, children, or buying a home, these moments change your life forever. But in the excitement of wedding dress shopping, choosing your child’s name and repainting the living room, we often don’t think about how these changes will affect our taxes. As a result, many people miss out on huge savings.
Three influential tax events:
Marriage: The most important tax-related option to consider when getting married is whether to file taxes jointly or individually. The choice is usually based on income levels. Couples who are married and filing jointly, may enjoy lower tax rates on their combined income. Generally speaking, there are more tax benefits to filing jointly, but there many reasons to file separately.
If one spouse is self-employed and the other doesn’t want to be connected to the business, filing separately may be an option. Filing separately might also make sense if one spouse owes income taxes and it would threaten the other spouse’s refund to file jointly. Another factor in filing separately is if you each have different tax advisors, or if one spouse requires a deadline extension, has high medical expenses, or dependents from a previous marriage.
Birth of a child: If you recently had a birth of a child or adopted a child, you may be able to take advantage of dependency exemptions, medical cost deductions, adoption credits, and child care credits. A major key to tax benefits is a Social Security number for your child. You can request a Social Security card for your newborn at the hospital at the same time you apply for a birth certificate. If you don’t, you’ll need to file a Form SS-5 with the Social Security Administration.
Claiming your son or daughter as a dependent will shield approximately $4,000 of your income from taxation no matter what time of year the child was born. A new baby also delivers a $1,000 per child tax credit, and is a gift that keeps on giving every year until your child no longer meets the definition of a dependent.
Buying a house: In addition to being an investment opportunity, owning a home may qualify you for valuable tax credits or deductions. New homeowners qualify for deductions on property taxes, mortgage interest, and certain home improvement costs.
You might be able to deduct:
- Your property taxes: Don’t forget to include any taxes you may have reimbursed the seller for. These are taxes the seller had already paid before you took ownership.
- The mortgage interest on your primary residence, as well as any secondary residence you own (there are limits, but relatively few taxpayers are affected).
- The interest on up to $100,000 borrowed on a home equity loan or home equity line of credit, regardless of the reason for the loan.
- Home improvements required for medical care.
Having a relationship with a CPA firm can help structure these decisions to maximize your tax benefits. Here at HBC CPAs we focus on personal client service to see that these milestones continue to benefit not only your personal life, but your financial life as well.