Life events can significantly impact the way you do your taxes and the amount of taxes you owe. Texas residents do their taxes differently based on their marital status or other stages in life.
Understanding how tax law works can help you manage your tax burden and personal finances accordingly.
Marriage or divorce
Getting married or divorced can have a significant impact on your taxes. For example, if you get married, you may have to change your filing status from single to married filing jointly, which can lower your tax bill. On the other hand, if you get divorced, you may have to switch from married filing jointly to married filing separately or as head of household, which could increase your tax bill.
Birth or adoption of a child
If you have a new child, you may be eligible for various tax credits, such as the Child Tax Credit, the Earned Income Tax Credit and the Child and Dependent Care Credit. Furthermore, you may claim a dependency exemption for the child.
Retirement can have a significant impact on your taxes, particularly if you start receiving Social Security benefits or start withdrawing money from your retirement accounts. These benefits may be taxable and increase your overall tax bill depending on the amount you receive.
If you purchase a home, you may be eligible for the Mortgage Interest Deduction, which can lower your tax bill by allowing you to deduct the interest you pay on your mortgage. Additionally, if you sell your home, you may have to pay capital gains taxes on any profit you make.
A job change can mean you may be eligible for new tax benefits, such as a flexible spending account for medical expenses or a dependent care account. If you are between jobs for a while, remember that your unemployment benefits are taxable.
Your tax obligations evolve with you
Different life events can have a significant impact on your taxes. It’s important to keep these events in mind and plan accordingly to minimize the impact on your tax bill.