Each year, Internet and media articles are overrun with "overlooked tax deductions" and "Top 10" lists of "new tax breaks to watch for." However, they are rarely applicable to the majority of taxpayers. Life changes are applicable to just about every taxpayer, and that's where you should look to get the most out of your tax return.
Here are the top three things to know about how common life changes can help you keep more of your money by reducing your taxes. If you already filed your tax return, and you see something that is applicable, you can always go back and amend your prior tax return (for up to three years) to add the item back on.
OBVIOUS LIFE CHANGES: Getting Married, New Baby, New Home, Divorce
When people think of life changes, the usual ones that come to mind include the big ones like getting married, having a baby, buying a home or other large life altering events. Each of those big changes can also create change on a tax return. New deductions, credits, benefits and other considerations need to be taken into account, and in most cases, can lower your tax liability.
LESSER-KNOWN LIFE CHANGES: New Dependent (Parent, Son-In-Law, Grown Child), New Self-Employment, New Education Expenses
With our nation's recent history of economic complexity, it has become more and more common to see changes to the tax profile and structure of many taxpayers' lives and tax returns. It is more common today for a taxpayer to have new family member to care for both physically and economically. Taking care of an older parent, a family member who needs help or even an older child that has moved back into the home can produce a tax benefit. Each of these drive changes to a tax return, including a possible additional dependent exemption and deductions and credits related to other expenses such as medical and education costs.
Many taxpayers are also taking on new and expanding business ventures. From small businesses in the home, to part-time consulting work or more elaborate small businesses, these can drive changes to your tax return and create new opportunities for benefits never before available.
Finally, if you, a family member or a dependent have higher education expenses, be sure to understand all of the tax benefits -- both deductions and tax credits available. There are about a dozen tax benefits related to higher education that can save you money by increasing your tax refund or reducing the amount you owe.
OTHER IMPORTANT LIFE CHANGES: Moving, Lay-offs, Retirement
For taxpayers who have moved or retired, or both retired and moved, there are many tax considerations that need to be taken into account. Some are required, like changing your mailing address with the IRS, but other considerations, such as moving deductions, decisions related to the timing of retirement plan distributions, and even where you live during retirement, can have enormous bottom line tax impact on your current and future tax returns (especially state tax returns).
For taxpayers who have been displaced or laid off for any period of time, there are many potential changes for your tax return related to changes in income level. There may be many impacts to your tax return such as the taxation of unemployment benefits and the ability to claim certain income-related credits and deductions previously not allowed.
My point? Tax changes are very common every year and are a part of tax-filing life in America. Read about them, stay on top of them as you get your taxes done each year, and take advantage of them where appropriate. More important, and less obvious, are life changes that may not be as highly publicized in the media or on tax websites. You, the taxpayer, are the best source of that information as it relates to your tax return and any life changes with a possible tax implication. As you organize your tax documents and get ready for preparing your taxes, take a bit of extra time to reflect on your year for those changes, and talk with a tax professional if you need more information before, during and even after your tax return has been prepared.