Life events and taxes: Introduction

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The most common reason your tax situation changes is that you’ve had a change in your life. Find out how the events might affect you and your taxes.

You shouldn’t live your life to try to pay fewer taxes, but you should know how events in your life will affect your tax situation. You marry and it will change your tax status. You have a child, you’re entitled to a tax exemption. You invest and grow a grand portfolio — and you pay taxes on the income from it. You start your own business, and you can deduct many expenses, including health insurance. And when you die, the IRS wants something before your heirs can have their share.

What you can expect to learn from this chapter:
Your changing tax life
  Any time there’s a change in your life — a birth, marriage, change of job, new house — you should consider the tax consequences.
Marriage and taxes
  File separately or file jointly? This is the big question for married couples. Here’s how to decide which way to go. Plus, the current statusof the “marriage penalty.”
Homeownership and your taxes
  Owning a home makes you eligible to deduct numerous expenses, including mortgage interest, points, property taxes and home equity loan interest.
And baby makes for more tax considerations
  While most families take deductions for their children, other dependents might be exemptions. We list five tax-dependency rules to make that determination.
Investment income
  This is what’s know as “unearned” income. It’s money you’ve made from savings accounts, CDs, stocks and bonds.
Self-employment tax considerations
  You’re eligible for many deductions if you’re self-employed, from office equipment and operating expenses to health insurance and special retirement savings plans.
Death and taxes: the inevitable
  Even when you die, taxes have to be paid before your estate can be distributed. Here are the federal exemption rules and a link to Bankrate’s state tax directory.

Chapter 5 quiz

  See if you learned what life events can affect your tax situation.