Life Events That Influence How You Calculate Your Tax Refund

Life is always in a state of flux. People get married and divorced daily, children are born and other family members become dependent on us as we seek to take care for them. There’s no telling just what will happen, but one thing we can be certain of is that our tax responsibilities will be changed each time a change like this occurs. Do you know what you’ll have to do and what classifies as a change that the Internal Revenue Service recognizes? You may be paying more or less than is necessary. At Book 2 Tax, we are more than familiar how life can throw us for a loop and point in new directions. To ease some of the growing pains, we offer expert Accountants and Tax Preparers to handle these twist and turns. In this article, we’ll take a look at how our taxes are affected and offer some useful information to help make the process painless.

Marriage

Are you going to walk down the aisle any time soon? There's a lot to consider when thinking about the possibilities of someone you choose to share your name and taxes with.

• One often overlooked element for newly married couples is that if  you change your name (adding a hyphenated name, inheriting your spouse’s  surname), you are responsible to let the Social Security Administration know by  filing Form SS-5. While you may think this just reflects on the minutia  of documentation, a discrepancy on your refund could delay processing until the  conflict is completely resolved. If you are pressed for time and haven’t had  the time to change your name with the Social Security Administration, the best  course of action is the file a joint return with your spouse using your  original name—the one that matches documents that have your Social Security  number. Later on, you can take the time to straighten out the details for next  year’s tax period.
• Refining Your Withholdings: Once all the thank you cards have been sent and you’ve returned back to work after your honeymoon, both you and your spouse will need to change the withholdings you’ve declared on your employer-issued W-4. The IRS provides a few tools on their website to determine what type of withholding allowances you deserve. As a rule of thumb, remember that when filing together, each allowance is worth more to the higher earner in terms of more take-home pay and reduced withholdings. Typically, most working couples have to worry more about under-withholding than over-withholding. While some may feel that trying to come up with an exact amount is difficult, the real purpose of adjusting your withholdings is to match your real tax responsibility so that your tax liability isn’t too large or your refund is TOO big, leaving less available funds throughout the year. It may be in your best interest to Find a Tax Preparer that can cali/pate your taxes to reduce sticker shock.
• Fringe benefits: Do realize that when you are married, some of the benefits offered by each employer may have a cross-over effect, meaning that there may be new opportunities to deduct or save money from tax responsibilities. It is a good idea to collect all the literature associated with these fringe benefits and see which ones overlap and become redundant (a spouse’s medical plan, for instance) versus ones that benefit both partners.

Having Children

pinging a new child into this world can be expensive, but your new bundle of joy could /ping significant tax savings for you. Think of it as Uncle Sam’s way of making up for all the lost sleep! Let’s look at the ways that your children can help you:

• Baby’s  Social Security Number: As soon as your child is born, you should request a Social Security card for your newborn at the hospital along with your application for a birth certificate. If you don’t or forget (hey, it’s a momentous day), you will need to file a Form SS-5 with the Social Security Administration, providing proof of your child’s age, identity and US citizenship. With a Social Security number, you’ll be able to claim the child as a dependent on tax returns. Failure to report your children may result in a fine ($50) and possible delay your tax return until your information is straightened out. If this strikes you as oddly formal and bureaucratic, realize that the IRS seeks to dissuade people from falsely claiming dependents, like undocumented children and household pets.
• Exemptions for Dependents: In 2015, if you claim your child as a dependent, you are able to have $4,000 worth of your income not subject to taxation. This exemption counts year-round, so if you had a child in December 2015, the full cash exemption is still valid for $4,000. As your income moves up into higher earning /packets, you’ll gradually lose these exemptions through phase-out rules. These phase-out rules reduce the amount of exemptions that you can claim. Be aware that if affected by the Alternative Minimum Tax (AMT), your exemptions will lose ALL of their tax-saving value.
• $1,000 Child Credit: a new child delivered to this world also delivers its own special gift, courtesy of Uncle Sam: a $1,000 child tax credit. This child tax credit is valid, year after year, until your child turns 17. Like the exemptions noted above, this credit is not affected by when in the year the child was born. Unlike the deductions, however, the credit doesn’t reduce the amount of income that the government is able to tax; instead, it reduces your tax bill dollar for dollar. If you have a tax bill over $1,000, the child credit can lop off a $1,000-sized chunk. Not bad for someone who was just born!

Purchasing a Home

One of the most significant changes to how your taxes will be filed AND how you live your life is related to purchasing a home. Buying a home can be a significant tax deduction. You may be able to deduct:

• Your property taxes,
• The mortgage interest on your primary residence, as well as any  secondary residence you own (limits do apply),

• The interest on up to $100,000 borrowed on a home equity loan or home equity       line of credit, 
• Points  you paid when purchasing the house (or convinced the seller to pay on your behalf), and
• Home improvements required for medical care.

Of these, the biggest savings tends to come from mortgage interest. Check out Form  1098 to find how much you are able to claim in tax reductions.