Most people try to avoid thinking about their taxes more than once a year, and even then find it a painful process. While most of the time our taxes are taken care of by an employer or through sales tax, occasionally our taxes are effected by life events, such as purchasing a house. Sometimes these life events can offer significant tax reductions, while others could require paying additional money to the government. For the low down on how the next big change could effect your bottom line see the following list.
1. Birth of a Child
Congratulations, you’re a parent! Parenthood comes with many new challenges and responsibilities, finances included. In fact, the tax code has numerous provisions specifically about children. These include tax exemptions, education savings plans, filing status, child care credit, child tax credit, earned income credit, medical expenses and adoption credit. The good news is these provisions allow you to have your taxes reduced through credits and reductions based on your need to now care for an additional person. Additional help is available to those with children who have special needs.
Marriage primarily affects your filing status when paying taxes. Even if you are single for most of a taxable year, if you get married during that time, you must file as a married person. As a married person you can either file a joint return with both spouses’ income and deductions combined or the two spouses can file separately, In general, a married couple benefits filing jointly over filing separately as the tax code is written to discourage doing individual filings for a tax break.
Divorce is not fun and often messy. The tax code in this area is no exception. Tax issues involving divorce include: attorney fees and court costs, property settlements, children, primary residence, filing status and alimony. In general, attorney fees and court costs are not tax deductible. Child support is neither taxable, nor can it be used as a tax deduction. The parent with custody of the children will continue to receive a tax exemption for each child. The tax code also varies on what is considered gain or eligible for credit when property is being distributed between the former couple.
Many people are unsure what to do when they receive an inheritance. Inheritance tax law is often misunderstood, and its application varies depending on the nature of the inheritance. If you were to inherit cash, real estate, stocks or bonds from someone, you would not need to pay taxes for the inheritance when you receive it. However any income generated through interest or dividends would be considered taxable. If you were to inherit an IRA account, which is composed of funds on which taxes have never been paid, you will most likely need to pay taxes for the account.
5. Death of a Loved One
Having a loved one die is one of the most trying times, and unfortunately it comes with its own financial and taxation requirements. Many people are unaware that after someone dies their taxes for their final year of life must still be paid. In addition, the survivors will need to take care of any estate taxes.
Briana Cameron is a professional blogger and marketing expert, currently writing for Don Allen & Associates Inc, offering Barrie bankruptcy help to residents and businesses throughout the Barrie, Toronto, Collingwood & Owen Sound areas.