Getting married, having a baby or moving can have a pretty big impact on your taxes. Each life changing event can open the door to new tax breaks or money-saving opportunities you didn’t know existed. Here’s how some common life events can affect your tax situation.
Going to college
Attending college is part of the American dream. It can help you develop your skills, increase your earning potential, and provide greater job security when you enter the workforce. If you’re paying for you, your spouse or dependent to go to college, you may be eligible for an education tax credit to help offset the cost. The American Opportunity Tax Credit is worth up to $2,500 per eligible student and the Lifetime Learning Credit is worth up to $2,000 per tax return. You cannot claim both credits for the same student in the same tax year. When you do your taxes with ezTaxReturn, we’ll help you take advantage of the credit that saves you the most money.
Getting a new job
Whenever you get a new job, you’ll be asked to complete a Form W-4, Employee’s Withholding Certificate. This will tell your employer how much federal taxes to withhold from your pay. Ideally, you want to check your withholding annually and anytime your personal or financial situation changes. Having too little taxes withheld means you’ll owe the IRS at tax time. On the flip side, if you overpay, you’ll get a refund when you file your tax return. Many people enjoy getting the lump sum of cash, but you’re missing the chance to bring home a bigger paycheck during the year.
Investing in a 401k
The average retirement age in the U.S. is 62. Start planning now, so you can live comfortably when the time comes. If your employer offers a 401k, aim to save 10% to 15% of your income annually. Because the account is funded with pre-tax money, every dollar you contribute lowers your taxable income by the same amount. As a result, you’ll pay less taxes when it’s time to file. Many employers also offer to match a portion of your contributions which will help your savings grow faster. For 2022, workers can contribute up to $20,500 to their 401k. Workers aged 50 or older can also make up to $6,500 in catch-up contributions.
Walking up the aisle
A lot of things change when you say “I do” and your taxes are no exception. Married couples have the option of filing their taxes jointly or separately. Typically, filing together is more beneficial because you may get a lower tax rate and qualify for more tax credits and deductions. If you’re legally married as of December 31st, the IRS considers you to be married for the full year. After getting married, it’s a good idea to check your tax withholding, report any name changes to the Social Security Administration to avoid future tax refund delays and report a change of address to the IRS and USPS if you moved.
Having a child
Claiming a dependent can significantly reduce your taxes. If you’re a single parent and paid more than half of the household expenses, you can use the head of household filing status instead of filing single. For 2022, the standard deduction for single filers is $12,950 and $19,400 for head of household. Simply changing your filing status can save you $6,450. Plus, you may qualify for other money-saving tax breaks like the Child Tax Credit, Child and Dependent Care Credit, and Earned Income Tax Credit. The fastest and easiest way to do your taxes is with ezTaxReturn. Pre-register now and receive an automatic discount when you file with us in 2023.
Selling your home
When you sell your home, you probably won’t have to pay taxes on all your profits. You can exclude up to $250,000 ($500,000 if married filing jointly) of profits from capital gain taxes if the home was your primary residence and you lived there 2 of the last 5 years. Keep in mind, you can only claim the exemption once every two years.