• Mortgages
    Compare Lenders
    • Mortgage rates
    • Refinance rates
    • Mortgage lender reviews
    Use Calculators
    • Mortgage calculator
    • How much house can you afford?
    • Mortgage refinance calculator
    • Mortgage payment calculator
    • Amortization calculator
    • All mortgage calculators
    Get Advice
    • Reverse mortgages
    • Home buying guide
    • Refinance your mortgage
    • First-time homebuyer tips
    • FHA loans
  • Banking
    Compare Accounts
    • CD rates
    • No Penalty CD
    • Savings accounts
    • Money market accounts
    • Checking accounts
    • Bank ratings
    Use Calculators
    • Savings calculator
    • CD calculator
    • Compound savings calculator
    • All banking calculators
    Get Advice
    • How to save money
    • Federal Reserve news
    • What is a money market account?
    • Which certificate of deposit account is best?
    • How to open a savings account
    • Credit union basics
    Bank Reviews
    • Capital One Bank
    • Marcus by Goldman Sachs
    • American Express National Bank
    • CIT Bank
    • Synchrony Bank
    • Barclays Bank
  • Credit Cards
    Compare by Category
    • Best Credit Cards of 2019
    • Rewards
    • Travel
    • Airline
    • Cash Back
    • No Annual Fee
    • Balance Transfer
    • 0% APR
    • Business
    • Student
    Compare by Credit Needed
    • Excellent Credit
    • Good Credit
    • Fair Credit
    • Bad Credit
    • No Credit History
    • Secured Credit Cards
    Compare by Issuer
    • American Express
    • Bank of America
    • Capital One
    • Chase
    • Citi
    • Discover
    • Wells Fargo
    Get Advice
    • Credit Card Reviews
    • Credit Card Payoff Calculator
    • Balance Transfer Calculator
    • All Credit Card Calculators
  • Loans
    Compare Lenders
    • Personal loan rates
    • Auto loan rates
    Loan Types
    • Personal loans
    • Auto loans
    • Debt consolidation loans
    • Home improvement loans
    • Student loans
    • Medical loans
    • Bad credit loans
    Use Calculators
    • Loan calculator
    • Auto loan calculator
    • Personal loan calculator
    • Auto refinance calculator
    • Loan payment calculator
    • Student loan calculator
    • All calculators
    Get Advice
    • Student loans guide
    • Refinancing student loans
    • Refinancing personal loans
    • Refinancing auto loans
    • How to get a personal loan
    • Personal loan origination fees
  • Investing
    Compare
    • IRA CD rates
    • Brokerage accounts
    • Brokerage reviews
    Use Calculators
    • Investment calculator
    • Annuity calculator
    • 401(K) calculator
    • Roth IRA calculator
    • All retirement calculators
    • All investing calculators
    Brokerage Reviews
    • WellsTrade Review
    • Robinhood Review
    • Merrill Edge Review
    • Vanguard Review
    • Fidelity Review
    • E*Trade Review
    Get Advice
    • Creating passive income
    • Mutual fund vs. ETF
    • Roth IRA vs. traditional IRA
    • What type of CD is best?
    • IRA basics
  • Home Equity
    Compare Lenders
    • Home equity loan rates
    Use Calculators
    • Should you borrow from Home Equity
    • HELOC Calculator
    • Debt consolidation calculator
    • HELOC payoff calculator
    • All home equity calculators
    Get Advice
    • What is a home equity loan?
    • HELOC vs. Home equity loan
    • Consolidate your debt using home equity
    • Home equity loans with bad credit
  • Personal Finance
    Compare
    • Current interest rates
    • Compare rates
    Use Calculators
    • Debt consolidation calculator
    • Net worth calculator
    • Personal finance calculators
    • Cost of living calculator
    • All calculators
    Get Advice
    • Retirement advice
    • Debt management
    • Improve your credit score
    • Career resources
    • Tax advice
    • Insurance basics
    • Real estate tips
    • Personal finance glossary
  • Free credit report
  • Sign In
  • Dashboard
  • Full Credit Report
  • Alerts
  • Settings
  • Support
  • Logout
Share

7 milestones in life that trigger taxes: Birth, marriage, work, homeownership and more

Kay Bell @taxtweet
January 16, 2017  in  Taxes

1 of 8

Babies, weddings, homes and taxes | Gastuner/Shutterstock.com
Babies, weddings, homes and taxes

Gastuner/Shutterstock.com

You were blissfully unaware of it, but taxes became a part of your life on the day you were born.

From that beginning as a spanking-new tax break for Mom and Dad, taxes have had an important role in all your major life events, from getting a job, saying “I do,” buying and selling homes, having kids of your own and even retiring.

In some cases, the involvement of the IRS is not such a good thing.

But in many ways, the tax code can be your best friend. You just need to know how it applies to your personal circumstances so you can take advantage of it. Read on to learn more about tax breaks for life’s big events.

RATE SEARCH: Looking for a high-yielding savings account? Compare rates at Bankrate.com today!

The Bankrate Daily

2 of 8

Getting your first job | Paul Bradbury/Getty Images
Getting your first job

Paul Bradbury/Getty Images

Uncle Sam gets a portion of your paycheck via payroll taxes. You do, however, have a bit of a say in how much comes out of your pay by adjusting your withholding.

If you have too much withheld, you’ll get a refund when you file. That’s not necessarily bad, but wouldn’t you rather have your own money year-round instead of giving the IRS an interest-free loan?

On the other hand, if you don’t have enough taken out, you could face a major tax bill, and possible underwithholding penalties, at filing time. Ask your boss for a new Form W-4 so you can run the numbers and adjust your withholding. You can change your withholding amount as often as you need to get your tax amount just right.

Your job likely offers several tax breaks. If your employer provides health care coverage, your medical insurance is a tax-free benefit to you. You’ll find out how much that’s worth on your W-2 earnings statement.

A flexible spending account, or FSA, also might be part of your job benefits. Here you can save pretax dollars to pay for medical care not covered by insurance.

You also want to take advantage of your workplace’s tax-deferred 401(k) retirement plan.

And if you move to take a job, even your first one, you can write off many of your relocation costs.

3 of 8

Getting married | SolStock/Getty Images
Getting married

SolStock/Getty Images

Uncle Sam probably wasn’t a guest at your wedding, but he becomes a big part of your life when you are a married taxpayer.

Most couples filed jointly because it generally produces the best tax result.

If both partners work, coordination of employer fringe benefits after marriage is key, says Mark Luscombe, principal federal tax analyst for Wolters Kluwer Tax & Accounting.

Reassess your individual retirement accounts. Your new combined income could affect your retirement contributions. Income limits apply to tax-free Roth accounts and also to how much of a traditional IRA contribution you can deduct if you or your spouse put money into a workplace retirement plan.

Marriage also is one of the changes in family circumstances that allows you to revisit your tax-favored FSA. Newlyweds also should reevaluate how much each has withheld from their paychecks.

And what about your once-in-a-lifetime honeymoon? The tax code’s annual gift exclusion amount for 2017 is $14,000, the same as it was for 2016. It’s usually adjusted annually for inflation.

That means both a well-to-do mom and dad could give each newlywed $28,000 or a combined total of $56,000 to the wedded couple. That definitely would pay for an extravagant post-ceremony getaway.

RATE SEARCH: Make your money work for you in a high-yielding savings account. Compare rates at Bankrate.com today!

4 of 8

Having children | MakiEni's photo/Getty Images
Having children

MakiEni’s photo/Getty Images

Congratulations on your new baby. Let Uncle Sam help cover some of your growing family’s costs.

A dependent youngster is an added exemption. Kids also allow parents to claim the child-tax credit as long as the youngster was 16 at the end of the tax year. Large families might be able to get money back from the IRS via the refundable additional child-tax credit.

If your family grew via an adoption, there’s a tax credit to cover some of the many costs of that process.

Working parents can use the child- and dependent-care credit to pay for some of the costs of caring for their kids while they are on the job.

And the tax code also offers several ways to save and pay for higher education costs, including 529 college savings plans, the Coverdell Education Savings Account and the American opportunity and lifetime learning tax credits.

RATE SEARCH: Get some interest on your savings starting today by shopping money market accounts.

5 of 8

Starting a business | Caiaimage/Paul Bradbury/Getty Images
Starting a business

Caiaimage/Paul Bradbury/Getty Images

Once you decide it’s time to break out of the corporate cubicle and start a new business, the tax code can help.

Filing is relatively easy for sole proprietors. They report their income as part of their annual individual tax filing by attaching Schedule C to Form 1040. Schedule C also offers many ways for individual entrepreneurs to write off many of their business expenses.

Among the deductible small-business costs are home office expenses. Business use of a vehicle also is deductible, as are health insurance premiums and contributions to self-employed retirement plans. New businesses also are allowed to deduct thousands in certain startup costs.

If you have kids, putting them to work in your sole proprietorship could be a tax-smart move. Depending on how much you pay them, they might not owe income taxes and you can deduct the salary as a business expense.

But starting a business is not all about tax breaks. Sole proprietors also must pay self-employment taxes. These are the equivalent of the payroll taxes collected from wage-earning employees. As both the employer and employee, a sole proprietor has to pay the boss and worker components of Social Security and Medicare taxes.

And running your own business usually means you must file more tax forms, including estimated tax payments four times a year.

6 of 8

Buying a home | Resolution Productions/Getty Images
Buying a home

Resolution Productions/Getty Images

Your home is probably your biggest investment. Homeownership also provides many tax breaks.

Interest paid on a primary residence mortgage up to $1 million is deductible as an itemized expense. If you take out a home equity loan or line of credit, interest on those loans up to $100,000 also is deductible. Even the interest on a second home is tax-deductible.

Property tax you pay on your main house — and any other residences you own — also is deductible.

The tax benefit of a home is even better when you sell it. Up to $250,000 in sales gain ($500,000 for married joint filers) on your home is tax-free, as long as you owned the property for two years and lived in it for two of the five years before the sale.

Many home improvements, such as structural additions, kitchen modernization and landscaping, can increase the basis in your home. This is essentially your investment in the home. A larger basis means less profit that might be taxable.

And some home upgrades, such as installing solar energy systems, also will get you an immediate tax credit to help offset the high cost of this type of improvement.

RATE SEARCH: Shopping for a mortgage? Compare mortgage rates today at Bankrate.com!

7 of 8

Dealing with divorce | TORWAISTUDIO/Shutterstock.com
Dealing with divorce

TORWAISTUDIO/Shutterstock.com

As with marriage, your filing status is determined on the last day of the tax year. If your divorce is final on Dec. 31, then you are considered unmarried for the full year.

One of the stickiest divorce issues is child custody. The parent who has physical custody of the children for most of the year usually gets to claim them as dependents. That means that parent gets the exemption, child-tax credit and child-care tax credit savings.

One spouse typically is granted sole ownership of the family home. This could, however, pose a problem for the solo owner. When the lone ex sells the property, the amount of profit exempt from capital gains is just $250,000 versus the $500,000 that married filing jointly homeowners can exclude. Because of that, some couples sell the house before they divorce and split the tax-free profits.

Similarly, take into account the cash the recipient partner will net after taxes when dividing other marital assets.

And note that alimony has tax implications for both ex-spouses. It is taxable income to the recipient and can be deducted by the paying ex. Child support, however, offers no tax breaks to the paying ex, as it is not deductible. However, to the recipient, it isn’t taxable.

8 of 8

Retiring | Colin Anderson/Getty Images
Retiring

Colin Anderson/Getty Images

Your golden years will be more enjoyable if you take advantage of the many tax breaks afforded by retirement plans.

A traditional IRA contribution could produce a tax deduction when you file your tax return. Remember, though, that you’ll have to pay taxes on this account when you start taking out money in retirement.

With a Roth IRA, you put in already-taxed money, but that means eventual distributions from a Roth are tax-free. The biggest drawback to a Roth is that you can’t open or contribute to a Roth if you make a lot of money. However, regardless of your income, you can convert a traditional IRA to a Roth.

Workplace retirement plans, usually known as 401(k)s or Roth 401(k)s, offer similar retirement saving options, but with a nice bonus. Many employers match some of your plan contributions, which helps your retirement savings grow more quickly.

Social Security benefits generally are tax-free as long as you don’t have a lot of other income.

And if you do have to file a tax return when you’re older, you can claim a larger standard deduction amount simply because you’re age 65 or older.

RATE SEARCH: Stretch your retirement income with a CD ladder. Compare CD rates today.

Related Links:
  • 7 wacky tax deductions to avoid in 2017 if you want to dodge a tax audit
  • 6 ways the IRS helps pay for education via tax-favored savings plans, other tax breaks
  • How are bonuses taxed?
  • Tax Credits
Related Articles:
  • Track down your tax refund
  • Dirty dozen tax scams
  • E-filing your tax return

You may also like

  • 2017 tax brackets

  • Capital gains tax rates

  • Teen jobs and taxes

  • How are 401(k) withdrawals taxes

  • State with no income tax: Better or worse?

  • Homeowners get a big tax break when they sell: A capital gains tax exclusion

Related Articles

  • 5 special taxes that target the wealthy

  • 7 ways to get organized for the tax season so you can get an early start on tax filing

  • How alimony payments affect your taxes when you’re the payee or the payer

  • Standard tax deduction amounts for the 2016 year

  • When can you take a tax deduction for moving expenses?

  • About Us
  • Press Room
  • Affiliate Center
  • Contact Us
  • Careers
  • Advertise With Us
  • Latest News
  • Popular Topics
  • Glossary
  • Compare Rates
  • Bank Reviews
  • Understand Bankrate's Averages
  • Privacy Policy / Your California Privacy Rights
  • Terms of Use
  • GLBA Annual Notice
  • Licenses
  • Sitemap
How we make money

Bankrate.com is an independent, advertising-supported publisher and comparison service. Bankrate is compensated in exchange for featured placement of sponsored products and services, or your clicking on links posted on this website. This compensation may impact how, where and in what order products appear. Bankrate.com does not include all companies or all available products.

Maximize Your Money. Get Expert Advice & Tools. Master Life's Financial Journey.

You have money questions. Bankrate has answers. Our experts have been helping you master your money for four decades.

Our tools, rates and advice help no matter where you are on life’s financial journey.

Follow Us

© 2019 Bankrate, LLC All Rights Reserved.

United States United Kingdom