How Major Life Events Can Impact Your Taxes
Previous

Reaching life milestones such as getting married, having a baby or buying a house are exciting, so take time to consider how your financial planning and tax obligations might be affected.

It can be easy to get lost in the lifestyle adjustments of a new marriage, baby, house, or other major changes. However, take time to consider how your financial planning and tax obligations might be affected.

Getting Married

One of the most important financial decisions you make when you get married is whether to file taxes jointly or filing separately, so make sure to consider the pros and cons before you sit down to prepare your returns. Many tax benefits are reduced or eliminated for couples who file separately.

If filing together lowers your tax burden, it's probably the best option. If it raises your tax burden, you may want to consider filing separately. You might also want to file separately if one spouse requires a deadline extension, has a lot of medical expenses, or is behind on student loans. Also, certain Income-Based Repayment options related to federal student loans require spouses to file separately. If either spouse itemizes deductions, the other will need to itemize, too.

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

Having a Baby

Your new bundle of joy may also come with some potential tax breaks, medical expense deductions, adoption credits, the child tax credit or child care credits.

In addition, consider some tax-advantaged long-term savings tools, such as a 529 plan, for your child. These plans are operated by state or educational institutions and make it easier to pay for education. Contributions are made with after-tax dollars, but the earnings will be tax free when the funds are used for qualified education expenses. Certain state tax deductions may be available and should be explored.

However, you should be aware that withdrawals from these plans for purposes other than paying eligible education expenses might result in additional taxes and penalties.

Getting Divorced

Going through a divorce can both positively and negatively impact your taxes. If your divorce agreement was finalized prior to the end of 2018, your alimony payments may be deductible, even if you don’t itemize (Alimony received is included in income). Tax reform eliminated this deduction, so if your divorce is finalized after 2018, alimony payments aren’t deductible for the payer or treated as income for the recipient. Agreements reached prior to 2018, but modified after 2018, will follow prior law unless the parties expressly provide that the new law applies. To see how these changes might apply to your circumstances, visit the IRS website or consult with a tax professional.

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 report a capital gain from selling your primary residence, you may be allowed to exclude some or all of the gain. If there are special circumstances surrounding the sale, such as a foreclosure, consult with a tax professional before you sign any papers.

A Death in the Family

During their life, or at their death, taxpayers can gift all property and assets tax free to their spouse. Property and other assets up to a certain total amount can be transferred to other beneficiaries without triggering any federal estate or gift tax.

To ready your own finances, you should have a will or trust prepared, especially if you have kids. A will can help guide how your assets are distributed and to whom. See an attorney who practices in your area to ensure that the documents are prepared correctly.

Most major life events have tax implications. Planning ahead for them can help you navigate complicated tax laws and protect your finances. A financial professional can assist you in preparing for the financial side of major life events.

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

Next

On a scale from 1 to 5, with 1 being 'Not Good' and 5 being 'Excellent', how would you rate this article?

Press enter to submit your rating

Rate this Article

Use this form to provide additional feedback based on the rating you provided.

Thanks for Rating

Would you like to provide feedback?

Thanks for your feedback!

This information is general in nature and is not intended to be legal, tax, or financial advice. Although Regions believes this information to be accurate, it cannot ensure that it will remain up to date. Statements or opinions of individuals referenced herein are their own—not Regions'. Consult an appropriate professional concerning your specific situation and irs.gov for current tax rules. Regions, the Regions logo, and the LifeGreen bike are registered trademarks of Regions Bank. The LifeGreen color is a trademark of Regions Bank.