Life is full of major milestones, and some of them can significantly impact your income taxes. Whether you’re tying the knot, buying a home, welcoming a child, going through a divorce, or retiring, these events bring changes to your tax obligations. Knowing what to do in each situation will help you prevent costly mistakes.

1. You Get Married

When you say “I do,” your tax situation changes. You can choose to file jointly or separately, but most couples benefit from married filing jointly (MFJ) due to lower tax rates and increased deductions. Filing jointly may also unlock tax credits such as the Earned Income Tax Credit (EITC). However, if one spouse has significant debt (like unpaid student loans or child support), filing separately may be the better option.

What to do:

  • Update your W-4 with your employer to reflect your new filing status.
  • Consider adjusting tax withholding to avoid surprises at tax time.
  • Decide whether to file jointly or separately based on your financial situation.

2. You Buy a House

Homeownership comes with tax benefits, including deductions for mortgage interest and property taxes. If you itemize deductions instead of taking the standard deduction, you could see significant tax savings. Additionally, first-time homebuyers may qualify for certain credits.

What to do:

  • Keep records of mortgage interest, property taxes, and home improvements.
  • Determine whether itemizing deductions benefits you more than the standard deduction.
  • Check for first-time homebuyer credits or energy-efficient home upgrade incentives.

3. You Have a Child

A new addition to your family means new tax benefits, including the Child Tax Credit and the Earned Income Tax Credit (EITC) if you qualify. You may also be eligible for the Child and Dependent Care Credit to help offset childcare costs.

What to do:

  • Obtain a Social Security number (SSN) for your child.
  • Update your W-4 to adjust tax withholdings.
  • Keep records of childcare expenses if you plan to claim credits.

4. You Divorce

A divorce affects your filing status, deductions, and even the taxation of alimony payments. If you were legally divorced by December 31, the IRS considers you unmarried for the entire tax year.

What to do:

  • Update your W-4 and filing status to single or head of household (if applicable).
  • Understand the tax implications of alimony (pre-2019 agreements are taxable, post-2018 are not).
  • Determine who will claim dependents for tax benefits.

5. You Retire

Retirement changes how you’re taxed, especially with income from Social Security, pensions, and withdrawals from retirement accounts. Some of these may be taxable, and required minimum distributions (RMDs) must be taken from certain accounts at a specified age.

What to do:

  • Know which retirement income sources are taxable.
  • Plan withdrawals strategically to minimize tax burdens.
  • Consider working with a tax advisor to manage RMDs and avoid penalties.

By staying informed about how these life events impact your taxes, you can plan ahead and make smart decisions that save you money in the long run. Remember to schedule an appointment with us any time you experience a major life change, so that we can help you keep your financial plans on track.