Everyone’s living situation is different. As a result, two people with very similar lifestyles may have very different tax returns. The taxes you file today may also look vastly different in the future based on your living situation, relationship status, children, and income.
If you’re curious about what could dramatically change your tax status and how you file your taxes, here are some of the most common contributing factors:
Your Income
Consider talking to tax accountants in Melbourne or your closest town or city when your income changes. Not everyone knows that a change in income or a new job can affect your taxes. Remember, it’s not just your everyday earnings that are taxable. Your bonuses and additional compensation may also be taxed.
If you know your income will change soon or already has, research what this could mean for your annual tax return. The more prepared you are, the less last-minute stress you may encounter.
Marriage and Divorce
Marriage and divorce can definitely complicate your tax situation as an individual and as a couple. When you get married, your tax filing status may change. This can mean your tax rates may also change. You could also be entitled to deductions and credits. However, deductions and credits you currently receive may also no longer be available.
When you marry, you can file jointly with your spouse or separately. Each filing has its pros and cons.
If your marriage ends, this, too, can affect your taxes. You may now need to factor in child support, a change in filing status, alimony payments, and asset changes.
Self-Employment
Many benefits can be associated with self-employment, like being your own boss, working your own hours, and enjoying more work-life balance. However, you may be less thrilled about how it changes your tax filing process.
Being self-employed normally means you have to manage your own self-employment taxes, sales tax, and estimated taxes. It can often be worth involving accountants to ensure you’re abiding by all legal requirements.
Buying or Selling Property
Taxes can be the last thing you’re thinking about while buying or selling property. However, changes in your property portfolio can mean big tax changes.
Buying a house for the first time might mean you can deduct mortgage interest, some closing costs, and your property taxes. However, if you’re selling a property that isn’t your primary residence, you may also need to pay capital gains tax.
Keep a close eye on all property-related costs you encounter throughout the tax year. You may then find it much easier to file your taxes with the most accurate information.
Children
Welcoming children into your family can be a joyous occasion. However, once the celebrations are over, don’t forget to think about what they mean for your taxes. You may now be entitled to the child tax credit and child and dependent care credit. Once your children grow up, they may also qualify for education tax credits.
Retirement
It’s easy to assume you don’t have to worry about taxes once you retire. After all, you’re no longer earning a regular income. However, that’s not always true. If you still earn over the taxable income threshold, retirement can simply mean that your annual tax return looks different.
You may need to account for any retirement account withdrawals, social security benefits, pension income, and penalties for withdrawing money from your retirement accounts early.
Major life events can have significant implications for your tax status. If you’re currently working your way through a life change, consider whether you need to discuss your new tax obligations with an accounting professional.
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