The article below is up to date based on the latest tax laws.
People can experience life-changing transitions over the course of just one year. These changes may include having a baby, securing a new job, moving to a new location or sending their grown-up child off to college in this last twelve months. As inevitable as change is, so is a change in income taxes. Here’s what you need to know about how life-changing events and the new tax law may affect your taxes.
Getting married. If you’ve put off marriage because of the marriage penalty, it might be time to consider tying the knot. Most married couples benefit from a marriage bonus when filing married versus filing single since married couples filing jointly get lower tax rates and may see more tax benefits. In some cases, however, if two spouses are making similar high incomes, they may see a marriage penalty. The marriage penalty could result in two high income earning spouses paying more in taxes than they would if they filed single, but under tax reform, tax rates were lowered further so that the same married couples may see lower taxes.
Getting divorced. The major change in the new tax law regarding divorce is the change in alimony. Alimony is no longer tax-deductible for the payer or included in income for the recipient if the payments made under a divorce or separation agreement was:
- (1) executed after 2018, or
- (2) executed before 2019 but later modified if the modification expressly states the repeal of the deduction for alimony payments applies to the modification.
That’s good news for the recipient, who doesn’t have to pay tax on support, but not-so-good news for the payer, who doesn’t get a tax deduction.
Death of a spouse. Losing a spouse is difficult, and having to pay “death tax” adds insult to injury, but the estate tax isn’t an issue for most of us. That’s because, under the new tax law, your estate can be up to $11,400,000 before you have to pay any tax (or, rather, before your heirs have to pay tax on your behalf).
Birth of a baby. A baby used to be called a “little tax deduction,” when considering the dependent exemption that parents were able to take prior to tax reform. However, the tax deduction for dependent and personal exemptions was eliminated under the new tax law. But don’t despair: the child tax credit has been expanded under the new tax law, and you can still get other valuable tax credits for your baby like the Earned Income Tax Credit and the Child and Dependent Care Credit.
Sending your teen to college. The American Opportunity Tax Credit gives you a credit of up to $2,500 per year for each dependent child for which you pay tuition, and the Lifetime Learning Credit is worth up to $2,000 per tax return. These tax credits were left unchanged in the new tax law.
Job hunting and moving costs. If you incur expenses to hunt for a job or to move to a new job location, then don’t bother keeping the receipts unless your employer plans to reimburse you. That’s because the expenses for job hunting are no longer tax deductible under the new tax law, and the tax deduction for moving expenses was eliminated unless you are active duty military.
Don’t worry about knowing these tax rules. TurboTax asks you simple questions about you and gives you the tax deductions and credits you’re eligible for based on your answers. If you have questions, you can connect live via one-way video to a TurboTax Live CPA or Enrolled Agent with an average 15 year’s experience to get your tax questions answered. TurboTax Live CPAs or Enrolled Agents are available in English and Spanish and can also review, sign and file your tax return.