Life’s Changes Bring Tax Consequences

A number of life’s big events and changes can save people significant money during tax season. According to Intuit, every year about 40% of taxpayers experience a major life event such as marriage, job loss or retirement. Becoming aware of the tax consequences associated with such life changes can save taxpayers a bundle.

Life events that carry significant tax consequences include:

  • Starting a new business — Remember to keep detailed records throughout the year in order to deduct expenses. If you work from home, take note of the simplified option for claiming up to $1,500 home- office deduction for 2013.
  • Divorce — Remember to sort out which parent will claim the dependent child exemption. If you are considering filing for divorce, and are concerned you’re your spouse may be dishonest regarding tax information, avoid filing a joint return. This may raise your tax, but will clear you of any liability for the year.
  • Medical expenses—For 2013, taxpayers can deduct expenses exceeding 10% of adjusted gross income. Qualified expenses include insurance premiums, contact-lens solution, skilled nursing care, tuition for special education and some assisted living care.
  • Marriage — Keep in mind the long-standing “marriage tax.” This tax code often leads to couples who earn very different incomes often paying less in total taxes after marriage; and couples making similar incomes end up paying more. Remember if you are changing your name, you must register your new name with the Social Security Administration prior to filing your return.
  • Birth and adoption — In order to take the childcare credit for children 12 and under (which applies to expenses up to $3,000 for one child and $6,000 for two or more) a parent must provide the child’s Social Security number. Adoptive parents can qualify for a tax credit of up to $12,970 per child in 2013.
  • Retirement — Don’t make the mistake of taking a pension lump sum before moving from a high-tax state to one with lower taxes. Retirees who have experienced an income hit should consider converting some or all of a regular IRA to a Roth IRA. Owners of regular IRAs must begin taking required withdrawals the year they turn 701/2. However, they have until the following April 1 to take the first payout.
  • Death — It’s important to file an estate-tax return after one spouse dies, in order to preserve any unused exemption for the partner.

If you’ve had a major life change in the past year, keep these tax saving opportunities in mind.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2016.

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