February 15, 2012
As we move through life, inevitably, things change. Some changes are big, and some are small, but all have an effect on our lives. While taxes are probably not the first thing you think of after a significant life event, you shouldn’t forget about them altogether. It’s important to be acquainted with how these events can affect your tax return. Identifying change and the effect it has on your taxes can save you money. If you have had significant life events in the last year or expect to have them in the coming years, it’s critical to discuss with your tax advisor how your tax planning will be affected. Here is a brief list of some events that can lead to tax saving opportunities:
When filing jointly, the higher income can be brought down into a lower bracket than it normally would be alone. Also, if you sell your home as a married couple, the profit can be tax free up to $500,000 if you lived in the home for at least two of the five years before the sale.
Having children will qualify you for the dependency exemption which will protect some of your income from tax. There is also a child tax credit and child care credit, which could reduce your tax bill significantly.
Couples can file jointly on a return if the decree has not become final before year end. When property is shifted from one spouse to the other, the recipient doesn’t pay tax on the transfer, but you will pay capital gains tax later if your former spouse decides to sell the asset.
Sending your Child to College
The American Opportunity credit and Lifetime Learning credit can be used for student’s college expenses. As a parent if your income is too high to qualify, students can file their own tax return or instead you can take a tuition deduction of up to $4,000.
By age 55 you can start using your 401k funds penalty free, but you will still owe income taxes on your withdrawals. You can start taking Social Security early at 62 instead of 66, but your benefits will be reduced by 25 percent for the rest of your life.
Call us for Help
Baker Milligan will guide you towards making the best tax decisions that result in optimal savings. Contact us today to find out how we can help you develop a tax return that will result in maximum deductions and credits. We want to alleviate your tax planning concerns so you can focus on enjoying life’s important events.
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