Are Your Taxes About to Change? Find Out Now With This Handy Checklist

Michael Keenan
·10 min read
Morsa Images / Getty Images
Morsa Images / Getty Images

Life comes at you fast, and when it does, taxes are probably not the first thing on your mind. However, if you’re not prepared for tax changes, you could find yourself mismanaging your budget.

Read: 10 Signs You Really Do Need Professional Help Filing Your Taxes

It’s impossible to say with certainty how much each of life’s big events will increase or decrease your taxes, but knowing how your taxes might change can help you be prepared when you file.

Last updated: Jan. 20, 2021

Nick Karvounis / Unsplash
Nick Karvounis / Unsplash

1. What Happens to Your Taxes When You Get Married

No matter how late in the year you get married, the IRS considers you married for the entire year.

Even if you get married on Dec. 31, 2020, you must file your 2020 tax return as either married filing jointly or married filing separately, but you can’t use any of the single filing statuses. Depending on your circumstances, you could save money after you’re married, or you could find yourself hit with the marriage tax penalty because you’ll owe more together than you would if you and your spouse were still single.

Tying the Knot? 9 Tax Tips Every Married Couple Must Know

emmgunn / iStock.com
emmgunn / iStock.com

What You Should Do

Each year you should prepare your taxes jointly and separately to see which option gives you the lower tax liability. Your standard deduction doubles as a married couple, so although it might have made sense to itemize your deductions in the past, that might not be the best move with the higher standard deduction.

A Guide: What Can I Write Off on My Taxes?

Leah Kelley / Pexels
Leah Kelley / Pexels

2. What Happens to Your Taxes When You Have a Child

Becoming a parent brings many changes to your life, including your tax return. If you’re single, you might be able to file your taxes as head of household and take advantage of lower rates. In addition, the tax code has several tax breaks for new parents, including the child tax credit, a larger earned income tax credit and a credit for dependent care expenses. To claim them, your child needs a tax identification number or, in cases like the earned income tax credit, a Social Security number.

mmpile / iStock.com
mmpile / iStock.com

What You Should Do

According to the Social Security Administration, the easiest time to apply for your child’s Social Security number is when you’re at the hospital providing information for your newborn’s birth certificate. Waiting to apply until later can cause delays, which could mean you don’t have the Social Security number in time for your regular tax filing deadline. If that happens, consider filing for a free tax extension that gives you an additional six months to file your return. Just keep in mind that a tax extension doesn’t extend your time to pay any taxes you might owe.

monkeybusinessimages / iStock.com
monkeybusinessimages / iStock.com

3. What Happens to Your Taxes When You Buy a Home

Making the jump from renting to owning a home can change your life — as well as your tax situation. The tax code includes deductions for mortgage interest and real estate taxes that you pay as a homeowner — though both are reduced under the new law. Both are itemized deductions, so you’ll only be able to use them to lower your tax bill if you give up the standard deduction.

Read More: Tax Breaks Every First-Time Homebuyer Must Know

mphillips007 / iStock.com
mphillips007 / iStock.com

What You Should Do

Plan for the tax implications of your home purchase when you’re budgeting for your house payment. If you’re already itemizing your deductions, the additional mortgage interest and real estate taxes you pay will lower your tax bill, which might allow you to bump up your house budget. However, if you’re not paying a lot for a home, the increased standard deduction might mean you won’t receive any extra tax benefits from owning because you won’t itemize.

GoodLifeStudio / iStock.com
GoodLifeStudio / iStock.com

4. What Happens to Your Taxes When You Move

Up until the 2018 tax year, if your move was related to starting a new job and you met IRS requirements for distance and working time, you could deduct your moving expenses on your taxes. However, the federal deduction for moving expenses is suspended for tax years 2018 to 2025 except for active-duty military personnel who move due to military orders. Regardless of whether you qualify for deductions, if you move to a new state you’ll need to file part-year tax returns in each state.

mdilsiz / iStock.com
mdilsiz / iStock.com

What You Should Do

Review the tax laws for each state you live in to make sure you know how each state calculates your income taxes and how it credits you for taxes paid to other states. Also, check your investment portfolio to make sure it’s as tax-efficient as possible. For example, many states don’t tax municipal bonds issued by state or local governments within the state. If you move to another state, however, those bonds might become taxable.

Rawpixel / Unsplash
Rawpixel / Unsplash

5. What Happens to Your Taxes When You Get Divorced

When you get divorced, you get a new tax filing status that is determined as of the last day of each year. In addition, if you have children, only one parent can claim them as dependents each year. The IRS has special tiebreaker rules to determine who can claim the kids and the associated tax credits, but you can also agree which parent will claim the children each year in your separation agreement.

KenTannenbaum / iStock.com
KenTannenbaum / iStock.com

What You Should Do

When getting divorced, make sure you consider the implications for filing taxes after the divorce when setting up your settlement. These range from who gets to claim the kids to how divorce payments are treated for tax purposes. Plus, you have to stay up to date on changing laws. For example, alimony payments were deductible for the payor and taxable to the recipient, but that changed in 2019. In addition, if you change your name as a result of the divorce, make sure your new name is registered with the Social Security Administration. File Form SS-5 with the SSA to update your name so your return won’t be rejected.

shapecharge / iStock.com
shapecharge / iStock.com

6. What Happens to Your Taxes When You're Laid Off

Losing a job is a major shift in your life, particularly in regards to your finances. With that comes some changes in your taxes as well, and not just those related to you earning less income. Severance pay and unemployment, for instance, are taxable and need to be reported, as are payments for any accumulated vacation or sick time paid out on your being let go. Likewise, unemployment benefits are taxable and should be included in your gross income at year’s end.

andresr / iStock.com
andresr / iStock.com

What You Should Do

Plan ahead and be sure you’re tracking what money is coming in. If you’re collecting unemployment, you can use a Form W-4V for a voluntary withholding request to ensure you don’t get a rude surprise when you file. However, there’s good news, too: A number of the expenses associated with your job search are deductible, including outplacement agency fees, resume preparation and travel expenses associated with your job search or interviews.

stocknshares / iStock.com
stocknshares / iStock.com

7. What Happens to Your Taxes When You Inherit Money

The IRS imposes a tax on estates that exceed the estate tax exemption, but because of the size of the exemption — $11.2 million per person as of 2018 — very few estates actually have to pay it. Unless you or the decedent live in one of the few states that impose an inheritance tax, you won’t pay any taxes on the money that passes to you, including assets such as houses, investments and life insurance proceeds.

cnythzl / iStock.com
cnythzl / iStock.com

What You Should Do

Write down the fair market value of all of the assets you inherit as of the date of the decedent’s death. When someone dies, the tax basis is stepped up to the fair market value, which can save you money when you eventually sell the assets. For example, say your parents paid $50,000 for a house decades ago and then you inherit it from them when it is worth $200,000. If you sell the house for $200,000 shortly thereafter, you don’t have any taxable gains because of the step-up in basis.

kali9 / iStock.com
kali9 / iStock.com

8. What Happens to Your Taxes When Your Kids Go to College

If you’re helping your kids with their college expenses, you might qualify for a range of income tax deductions and credits, including the American Opportunity Tax Credit, the Lifetime Learning Credit and the student loan interest deduction. The tax breaks won’t offset all the costs you pay for your kids to get a good education, but they will help ease the pain on your wallet.

See: Ideal Salary Needed to Afford College in Your State — Without Loans

plasticsteak1 / iStock.com
plasticsteak1 / iStock.com

What You Should Do

Keep track of the expenses you pay and compare the value of different tax credits to make sure you are maximizing your tax breaks since you can’t claim both the American Opportunity Tax Credit and the Lifetime Learning Credit in the same year. Also, plan ahead for when you pay the expenses. Whether you pay the winter semester costs in December or January could affect how much you’re able to benefit from the various tax breaks.

XiXinXing / iStock.com
XiXinXing / iStock.com

9. What Happens to Your Taxes When You Retire

Your taxes might go down when you stop earning a paycheck, but that doesn’t mean you won’t pay income taxes in retirement. If you’ve been saving for retirement with a tax-deferred retirement account like a traditional IRA or 401(k), distributions from those accounts count as taxable income. Plus, if you have enough income from outside sources such as interest or dividends, some of your Social Security benefits will be taxable, too.

vm / iStock.com
vm / iStock.com

What You Should Do

Account for taxes when you’re budgeting for your retirement expenses. Each dollar you withdraw from a traditional retirement account increases your income and could mean a larger portion of your Social Security benefits are taxable. Consider using Roth retirement accounts because qualified distributions from those accounts don’t count as taxable income.

PeopleImages / iStock.com
PeopleImages / iStock.com

10. What Happens to Your Taxes When You Die

Neither can be avoided, but even death won’t get you out of filing your taxes. After you die, your personal representative is responsible for filing an income tax return for the last year you were alive, plus any prior years you hadn’t filed yet. The return includes income you earned from the start of the tax year until the date of your death. But it’s not all bad news. If you were owed a refund, your estate can still collect it and pass it on to your heirs.

William_Potter / iStock.com
William_Potter / iStock.com

What You Should Do

Make sure your estate plan is in order and names someone you trust to oversee the preparation of your final income tax returns. In addition, if your estate has more than $600 in income prior to the money being distributed to your heirs, your representative will need to file an estate income tax return. If you expect to die with an estate larger than the estate tax exemption, talk to an attorney about putting an estate plan in place that minimizes your estate taxes.

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Joel Anderson contributed to the reporting for this article.

This article originally appeared on GOBankingRates.com: Are Your Taxes About to Change? Find Out Now With This Handy Checklist