How Major Life Events Can Impact Your Taxes
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Life's major milestones — like getting married, planning for a baby, or buying a house — mean making important financial decisions and serious lifestyle shifts. While you're looking at your budget and creating a financial plan, it's also important to examine how your taxes might be impacted.

"So many events in life can affect your taxes," says Jeffrey Mutnik, Director of Taxation and Financial Services at Berkowitz Pollack Brant Advisors and Accountants in Fort Lauderdale, Florida. "But if you plan ahead, you can stay ahead of the game."

Getting Married

One of the most important financial decisions you make when you get married is whether to file taxes jointly or individually. "This is not a discussion that should happen in April," Mutnik says.

If filing together lowers your tax rate, it's probably the best option. If it raises your tax rate, you may want to consider filing on your own. You might also want to file separately if one partner requires a deadline extension, has a lot of medical expenses, or has dependents from a previous marriage.

A tax professional can help you determine which method of filing best suits your needs.

Having a Baby

When you're planning a family, Mutnik advises opening a 529 plan to save for college. These savings plans, operated by state or educational institutions, provide tax advantages and other incentives to make it easier to pay for college. "The contributions are made with after-tax dollars, and the earnings on your contributions will be tax-free when the child uses the funds for qualified college expenses," he says.

However, you should be aware that withdrawals from these plans for purposes other than paying eligible college expenses may result in additional taxes and penalties. Furthermore, certain state tax deductions are available and should be explored.

Also don't forget the more immediate costs of starting a family. You may be able to take advantage of dependency exemptions, medical cost deductions, adoption credits, and childcare credits, Mutnik says. Additionally, an investment account in your child's name can help you take advantage of — albeit limited — benefits of lower tax rates on income and capital gains, which typically are lower than the parent's rates.

Getting Divorced

Managing your finances in divorce can both positively and negatively impact your taxes, Mutnik says. For example, alimony payments can be deducted from your taxable income — which lowers your tax liability — but child support payments cannot. That means if you pay $3,000 a month in alimony, you can deduct that expense from your taxable income. Your ex-spouse then reports that alimony received as income. If you are attempting to secure alimony or property from your spouse during divorce proceedings, you may also be able to deduct related legal expenses.

To address the tax implications of your divorce, you may want to consult a tax professional before making any decisions.

Buying or Selling a Home

In addition to being an investment opportunity, owning a home may qualify you for valuable tax credits or deductions, including deductions for property taxes, mortgage interest, and moving costs.

If you sell your primary residence at a gain, you're allowed to exclude up to $250,000 for individuals or $500,000 for a couple filing jointly of any gain from the sale. If there are special circumstances surrounding the sale, such as a foreclosure, consult with a tax professional before you sign any papers, Mutnik says.

A Death in the Family

"It's always a good idea to have a will, especially if you have kids," says Mutnik. "By taking basic steps, you can determine who benefits from your estate."

Upon the death of a spouse, all property and assets can be transferred tax-free to the surviving spouse. Property and other assets up to $5.49 million (in 2017) can be gifted to children and others over their lifetime without federal income tax implications. Gifts over that amount are subject to taxation.

Most major life events have tax implications, and the sooner you address them, the more protected you'll be. "Taxes can get incredibly complicated," Mutnik says. "Talk to a knowledgeable tax professional to make sure you are prepared."

For more information on tax planning, visit the Regions Tax Center.

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This information is general in nature and is provided for educational purposes only. Regions makes no representations as to the accuracy, completeness, timeliness, suitability, or validity of any information presented. Information provided should not be relied on or interpreted as accounting, financial planning, investment, legal, or tax advice. Regions encourages you to consult a professional for advice applicable to your specific situation.