These 3 Life Changes Can Quietly Rewrite Your Taxes: Here’s What To Know
Written by
Dawn Allcot
Edited by
Jenna Klaverweiden
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Getting married, buying a house and having a baby are big milestones in a person’s life. They can also mean good news on your tax return. But filing taxes gets more complicated as your life situation changes. Filing as a single person with a W-2 job, no dependents, no real estate or investments, and few medical expenses usually means you take the standard deduction for a single filer, submit your 1040 form and hope that your withholding taxes for the year mean you get a small refund or come out even.
As life changes, there’s more to understand before you file taxes. Today’s tax software typically walks you through a series of prompts for these situations, but if you’re unsure about what deductions and credits you can take, speak with a tax professional before filing.
Getting Married
When you get married, your tax bracket might change. Because the minimum and maximum income required for a certain tax bracket double for married couples filing jointly, a spouse with higher income may end up in a lower tax bracket. For instance, let’s say one spouse earns $50,000 per year. Their marginal tax rate as a single filer is 22%. The other spouse earns $250,000, which means their marginal tax rate is 32%. However, the combined income of $300,000 puts them into the 24% bracket as a couple, where they can earn up to $394,6000 in combined income.
Depending on your situation, being married may have other tax advantages, including a higher Earned Income Tax Credit (even if one partner doesn’t work), capital gains tax exemption for the sale of a home and charitable gift deduction (for couples who itemize).
Buying a Home
Buying a home gives you access to additional tax write-offs. But homeowners must itemize to claim these deductions.
Homeowners can take a SALT deduction for up to $40,000 of certain state and local tax payments as long as their income is below $500,000 ($250,000 for married couples filing separately). They can also write off mortgage interest.
Having a Baby
Having a baby comes with additional tax credits, but it’s important to understand the rules.
New parents are eligible for a tax credit of $2,200 per child under the age of 17. Up to $1,700 of the credit is refundable, which means you can claim that money even if you don’t owe taxes. Single filers with income up to $200,000 qualify for the full credit. That number rises to $400,000 for married couples filing jointly.
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