Marriage Tax Benefits and More: Life Changes That Alter Your Tax Strategy
- January 31, 2019
- by Barsz Gowie Amon & Fultz
Life can throw a lot at you. Throughout many of life’s changes, various tax benefits could be available for you, your spouse, or your family. Whether you’re getting married, having a child, or buying a house, it’s crucial to understand the implications for your taxes and your tax strategies. At Barsz Gowie Amon & Fultz, we’ve guided our clients through many of these changes, and believe reaching out to a CPA to discuss tax benefits can lead you to a path of financial security.
Following the wedding-day excitement, your first priority may not be understanding the day-to-day financial implications of a new marriage. But, when it comes to your taxes, it turns out that tax brackets can work in your favor as newlyweds. Together, you may pay a lower total tax if one spouse earns significantly less than the other. Additionally, filing together as a tax strategy may mean more deductions and unlimited gift giving. This means spouses can exchange as many gifts as they’d like with no tax consequences. Finally, once your marriage is finalized, you only must submit one return – not two. This means that things like charitable contributions count for both spouses, not just for an individual filing.
Having a Child
While there is much to plan when starting a family, there are several tax implications to be aware of when preparing for your newest addition. One of the largest implications of having a child is claiming a child tax credit. In 2018, the child tax credit was expanded to allow up to a $2,000 credit for child 17 years of age. If you’re married, a household income can be as high as $400,000, or if you’re a single filer, this credit holds for incomes up to $200,000. A large stressor for working parents is the cost of childcare during their work hours. That’s why it is crucial to know that you can also claim a tax break for child care, depending on your income. The total amount of care costs that you can claim is capped at $3,000 for a single child and $6,000 for two or more children.
Buying a House
Before finding your forever home, understanding the tax deductions and long-term financial commitments associated with home ownership is imperative. The tax-free profits on the sale of a home have a wide range – up to $250,000 in profit is tax-free for single taxpayer and $500,000 for those married and filing jointly. Taxpayers who also itemize can deduct a certain amount of mortgage interest, which plays a huge role in your financial planning. This allows homeowners to write off interest up to a set amount of home debt.
Selling an Investment Property
When parting ways with an investment property, it’s important to prepare for the financial implications that will ensue. An effective way to reduce your tax exposure is to pair the gain from the sale with a loss in another area of investments. This is called tax-loss harvesting. Many people utilize this strategy at the end of the year to reduce the amount they owe from stock gains. When preparing for a potential sale, familiarize yourself with Section 1031 of the tax code. This code lets you sell your property, purchase a “like-kind” property, and defer paying taxes at the same time the exchange is made.
Making Large Stock Gains or Losses
While experiencing large stock losses is never ideal, there are steps you can take to mitigate negative outcomes. Capital loss deduction gives you at least a chance to get a tax break from a bad investment decision. This can be calculated with the Form 1040 tax return as part of required reporting for sale of investments throughout the year. There are also rules that regulate when you’re allowed to claim a capital loss. Logically, you must sell the investment in question – but, there is an additional restriction called the “wash sale” rule. This stipulates that in order to claim a loss, you must not buy back the investment you’ve sold within the first 30 days after the sale. This also requires that you distinguish between a short- and long-term capital gain or loss. If you’ve had an investment for longer than a year, any gain or loss is long term. Any investment you’ve owned for less than a year is considered a short-term gain or loss.
Whether you’re walking down the aisle or looking to settle in your first house, it’s important to learn more about how your life-changing decisions may impact your taxes and tax strategies. Understanding how these interconnected changes affect you and your loved ones can seem daunting, which is why the partners at Barsz Gowie Amon & Fultz are ready to have a meaningful conversation about your future of financial stability.