Taxes and Life-Changing Events

Are you or have you put off life-changing events for these financial reasons? Here is an overview of life-changing events and their tax implications.

• Lack of savings
• Difficulty paying bills
• Paying off credit card debt
• Concerns about losing a job
• Worries about the economy
• Taking care of elderly parents or relatives

Don't let finances stop you from living your life! These major life events could positively change your tax situation and dramatically affect your tax benefits:

Marriage

Getting married will change your life in many ways, including your tax situation and benefits:

• You will need to change your IRS filing status.
• Take note of your new standard deduction.
• You may want to adjust your paycheck withholding (our free Tax Withholding Assessment Tool will help you determine if you need to update your Form W-4)
• Learn about the marriage "penalty" and "bonus," as well as other aspects of taxes and marriage.
• You may need to change your name and/or address with the IRS and Social Security Offices.

Divorce will also affect your taxes:

• Learn about child support, alimony payments, and taxes, or help with an absent father or other parent.
• Do you qualify for Innocent Spouse Relief or Injured Spouse Allocation?
• Who gets to claim the dependents?
• A name and/or change of address might occur—learn how to report these to the IRS and Social Security Offices.

Children

Having a child or otherwise gaining a dependent can qualify you for several tax benefits:

• A larger Earned Income Tax Credit; see if you qualify using the free EITCucator.
• The Child Tax Credit can provide a refundable tax balance to your taxes to offset the expenses of raising children.
• The Child and Dependent Care Tax Credit is similar to the Child Tax Credit but is specifically geared towards the parent(s) who work and often pay for childcare. Tax Tip: both can be claimed! Read IRS Publication 503, Child and Dependent Care Expenses, to learn about child and dependent care expenses.
• Learn about child tax deductions you may be eligible for.
• The Adoption Tax Credit is a nonrefundable credit for those who finalize an adoption in a given tax year.
• You may be entitled to credits for fostering a child.
• Other federal tax credits for families.
• How students file taxes; see the College section below for education tax deductions and credits.
• Find information on taxes for your children during summer break, including summer camp or a job.

If you are unmarried and have a child, you may qualify for the Head of Household filing status or HOH. Consider using the free eFile STATucator or HOHucator to determine if this is the case, as this status has great tax benefits. Additionally, determine if your child can be claimed as a dependent using this free DEPENDucator.

When you prepare and file with eFile.com, the eFile app will determine and apply all these credits and deductions you may be entitled to based on the information you report.

College, Education

If you, your dependent, or your spouse go to college or pursue an education in or after high school, there are tax benefits for both of you:

• Education tax credits (American Opportunity and Lifetime Learning Credits): These credits go unclaimed annually by students and parents who could be eligible simply by claiming. When you file with eFile.com, the eFile app will apply the credit(s) that best benefit your tax situation.
• Student tax deductions (Student loan interest and tuition deductions) may be able to lower your taxable income.
• Contribute to tax-free college savings plans. You can contribute to these plans and use the money later on qualified expenses, which will be tax-free.
• Scholarships, educational assistance, and other forms of tax-free income are detailed on the Students and Educators Page.
• How to File Income Taxes: a guide for taxpayers, including students.

Suppose you are a teacher or educator at a qualified educational institution. In that case, you may be able to claim certain deductions and expenses, such as classroom equipment, teaching materials, development courses, higher education courses, and more.

House

Once you own a home, many tax benefits become available to you:

• Mortgage interest deductions. If you itemize your deductions, you can claim the home mortgage interest you may have paid during the tax year. Learn about the benefits and differences between itemized and standard deductions.
• Tax-deductible home expenses. To claim these expenses, you must itemize your deductions.
• Home office tax deductions may be applicable if you are self-employed and file a Form 1099—eFileIT with eFile.com.
• Tax credits for energy-efficient homes—you may be able to claim the nonrefundable Residential Energy Efficient Property Credit for 2021 and 2022. Additionally, find tax credits for electric vehicles.

Job

Employment is the cornerstone of the economy, and having a job has many associated tax benefits:

• Working may qualify you for the refundable Earned Income Credit if you make low or moderate income.
• Find out ways your employer can give you tax-free income. There are many ways to lower your taxable income, some of which can be optimized through an employer.
• New job? Adjust your income tax withholding by claiming more or fewer allowances on your Form W-4—use our free Tax Withholding Assessment Tool to find out if you need to update your allowances.
• Discover deductible work-related expenses.
• You may be able to claim employee expense deductions. Since the 2018 Tax Reform and Job Act, employee expenses are not deductible on current and future Tax Returns with a few exceptions. One of these is self-employed individuals.
• Start saving for retirement; learn more about 401(k) or IRA savings plans to see how your employer can greatly optimize your savings through mutual 401K contributions. See Retirement below for more.
• There is tax help for members of the Armed Forces.
• If you are self-employed and/or part of the gig economy, learn about different benefits that you may be able to optimize.

Unemployed

Being unemployed and looking for a job has the following tax benefits: 

• Find out the tax effects of job loss and unemployment. Since unemployment compensation is taxable income, it must be reported on your tax return for a given year.
• Discover some deductible job-search expenses, such as travel and transport expenses when traveling for interviews due to a job-search.

Retirement

When you retire, the income you have saved may or may not be taxed: 

• If you have Social Security income (disability, income from a pension plan, etc.), it would only be taxed if you have income from other sources and your combined income is more than a certain base amount.
• Retirement plan income may also be taxed. If you make any retirement plan contributions or retirement distributions, they must be reported on a tax return.
• Find retirement contributions credit known as the Saver's Credit which can reduce your income tax each year you file. Prepare and e-file with eFile.com, and the eFile app will help select this credit for you, if applicable.
• Be aware of penalties for withdrawing from a retirement plan early.

Death

"In this world, nothing can be said to be certain, except death and taxes," Benjamin Franklin said. When death comes, taxes follow. Consider these tax-related items when someone dies: 

• If property or money is inherited, the person who inherits it may owe an estate tax. 
• When you prepare and file a tax return on eFile.com, there's a box to check to indicate that you're filing the return for a deceased taxpayer. You can also enter the date of death on the return. Before you start, find out if the person is required to file a tax return. 
• Use Form 1310 to claim a tax refund for a deceased taxpayer—eFile this form.
• If you also need to file previous tax returns for the deceased taxpayer, find, download, and complete tax forms for any tax year. 
• Don't have their tax information? You can request a free tax return transcript from the IRS. 
• The IRS may need your permission to receive a deceased taxpayer's information. Submit an information request with the taxpayer's full name, address, and social security number. Additionally, you will need a copy of their death certificate and either a copy of Letters Testamentary approved by the court or IRS Form 56, Notice Concerning Fiduciary Relationship, if there is no court proceeding.
• If your deceased spouse was on a retirement plan, contact the employer or plan administrator to claim any benefits available to you. You should also review and change your beneficiaries if possible.
• Protect any taxpayer's identity if it's used to file a fraudulent tax return. Make sure to send copies of the death certificate to the IRS to update the taxpayer's records and each credit reporting bureau so they can put a "deceased alert" on the taxpayer's credit card report. You may also need to review their credit report for any questionable activity. If you are writing and submitting an obituary to a newspaper or other publication, don't put too much information that could be used by identity thieves, such as an address, birth date, or mother's maiden name.

Other Life Events that Affect Your Taxes

The following events and situations may have an impact on your taxes. Review these pages to learn how to handle them:

• Disasters may affect the date a return is due for an individual taxpayer in a given area or nationwide. See IRS publications on Disasters and Casualties and Disaster Relief.
• Learn about different chapters of claiming or filing bankruptcy and how to handle them. Find ways to pay taxes.
• A tax audit may come in the form of an IRS notice. Learn how to handle and respond to an audit appropriately.
• Moving expenses may be deducted only if you are an active duty military member for Tax Years 2018-2025.
• Financial hardship and tough times can lead to troubles with taxes. Find ways to approach and handle different hardships.

Are There Life-Changing Events that Don't Affect My Tax Situation?

Life-related expenses that are not tax deductible include:

• Burial, funeral, and cemetery expenses.
• Credit card fees (non-business).
• Home repairs are not deductible and should not be confused with home improvements.
• Life insurance premiums (unless part of an alimony payment).
• Rent payments.

Find more expenses that do not qualify as tax deductions.

How will my Life Changes Affect my Paycheck?

Use the free eFile.com Tax Withholding Assessment Tool to see if you need to update your tax withholdings. Learn how to optimize your withholding and keep as much of your hard-earned money as possible. Then, prepare and file with eFile.com and get the most out of your Tax Refund. Start Tax Preparing now!

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Additional Resources

• If your recent life change has affected your finances, try these money-saving tips.
• Learn how to save money when traveling for work or school.
• Find out when your refund should arrive or be deposited using this free DATEucator.
• See resources and information about tax savings and adjustments in tough times.
• Tax planning: Use this free Tax Refund Calculator to estimate your taxes and prepare for next year.

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