2017

Four Life Changes that Affect your Taxes and How to Tackle Them

Life changes often mean tax changes. Whether it's getting married, buying or selling a home, moving abroad, or having a baby, misunderstanding the tax and financial implications of these life changes can lead to taxpayers making mistakes or leaving money on the table.

Depending on your situation, there are new tax implications that will impact your benefits, tax bill, and how you file. If you experienced a life change in 2016, here is a list of tax implications and how they will affect you.

Marriage

Many couples close the book on their wedding to-dos once the last thank-you card has been sent, but looking at your new tax situation is an important first step in your married life. There are some instances when getting married can have negative implications for a couple's tax situation. Once you're married you must file either as married filing jointly or married filing separately. In some cases, a couple with one spouse earning most of the household income will benefit because their overall tax bracket may decrease. However, a couple with two high earners may find they face a higher tax rate than if each paid tax only on their own income and added the taxes paid.
However, there are some ways to protect against potential negative tax implications. After your marriage is official, update your W-4 with your employer to account for your new marital status. If you're self-employed or a small business owner, make sure to adjust your quarterly estimated tax payments.

New Baby

Luckily, amid all the added expenses, your little bundle of joy might bag you some big discounts. I'm talking about tax credits, which, depending on your eligibility, could save you thousands in 2016. Here are the major tax credits available to parents:

Earned income tax credit.

The EITC is designed to help Americans with low to moderate income. For 2016, if your adjusted gross income is less than $44,846 if married and filing jointly, you may be eligible for a maximum credit of $3,373 courtesy of your first child. Even larger credits are available for parents with two or three children.

Child Tax Credit.
With the child tax credit, you may be able to reduce your 2016 federal income taxes by up to $1,000 if you have a baby that year. The only catch is that if you earn over a certain amount, you'll start to lose out on this benefit. For those married filing jointly, the credit begins to phase out at $110,000.

Child and Dependent Care Credit.
If you and your spouse will be paying for child care so you can return to work, then you may get some of that money back in the form of the Child and Dependent Care Credit. As long as you use a qualifying caretaker, such as a day care facility, you may be eligible to get back a percentage of your expenses, up to $3,000 for a single child (or $6,000 for two or more children), when you file your taxes.

Buying a House

Purchasing a home may open the door to more deductions through itemizing if you aren't already doing so. Once you become a homeowner, you can deduct many of your home-related costs, including your qualified home mortgage interest, points paid on a loan secured by your home, real estate taxes, and private mortgage insurance premiums paid on or before December 31, 2016. If you choose not to itemize, you may benefit from other tax advantages such as penalty-free IRA withdrawals if you are a first-time home buyer under the age of 59 and a half, or residential energy credits for purchases of certain energy-efficient property.

New home-buyers should be on the lookout for Form 1098 Mortgage Interest Statement, which is used to report mortgage interest. This form can help you identify these deductions when completing your Form 1040.

Moving Abroad

Are you excited to move abroad but have no idea what will happen to your taxes and how to file? Many Americans living and working overseas will not owe tax to the IRS because of the foreign earned income exclusion and foreign tax credit. However, even if you qualify for those benefits, you have to file a US tax return each year if you received income over the normal filing threshold.

We sell real estate and know very little about taxes. So we suggest you contact your accountant to get the one-on-one advice you need to file your 2016 taxes.

We are THE MILITELLO TEAM, selling real estate in Essex County which is North of Boson on the North Shore.

THE MILITELLO TEAM