Taxes and Life-Changing Events

Life Changing Events

Are you or have you put off life-changing events for these financial reasons? Here is an overview of life-changing events and their tax implications.

  • Lack of savings
  • Difficulty paying bills
  • Paying off credit card debt
  • Concerns about losing a job
  • Worries about the economy
  • Taking care of elderly parents or relatives

Don't let finances stop you from living your life! These major life events could positively change your tax situation and dramatically affect your tax benefits:

When you prepare your tax return on eFile.com, we will help determine which tax breaks you qualify for based on the events that happened to you during the Tax Year. That way, we can be sure to include any tax savings on your tax return. Use this free Tax Refund Calculator to estimate your taxes.

Any of the events above may also affect your paycheck tax withholdings, so you should review and adjust your W-4 every time your life changes. Even if these life-changing events might not affect your gross paycheck, they might increase your net paycheck if your filing status changes your tax brackets or if you qualify for certain tax credits or tax deductions, such as home expenses and improvements, so you may still want to update your W-4 anyway. Use the free eFile.com Tax Withholding Assessment Tool to see if you need to submit a new W-4!

Marriage

Getting married will change your life in many ways, including your tax situation and benefits:

Divorce will also affect your taxes:

Children

Having a child or otherwise gaining a dependent can qualify you for several tax benefits:

If you are unmarried and have a child, you may qualify for the Head of Household filing status or HOH. Consider using the free eFile STATucator or HOHucator to determine if this is the case, as this status has great tax benefits. Additionally, determine if your child can be claimed as a dependent using this free DEPENDucator.

When you prepare and file with eFile.com, the eFile app will determine and apply all these credits and deductions you may be entitled to based on the information you report.

College, Education

If you, your dependent, or your spouse go to college or pursue an education in or after high school, there are tax benefits for both of you:

  • Education tax credits (American Opportunity and Lifetime Learning Credits): These credits go unclaimed annually by students and parents who could be eligible simply by claiming. When you file with eFile.com, the eFile app will apply the credit(s) that best benefit your tax situation.
  • Student tax deductions (Student loan interest and tuition deductions) may be able to lower your taxable income.
  • Contribute to tax-free college savings plans. You can contribute to these plans and use the money later on qualified expenses, which will be tax-free.
  • Scholarships, educational assistance, and other forms of tax-free income are detailed on the Students and Educators Page.
  • How to File Income Taxes: a guide for taxpayers, including students.

Suppose you are a teacher or educator at a qualified educational institution. In that case, you may be able to claim certain deductions and expenses, such as classroom equipment, teaching materials, development courses, higher education courses, and more.

House

Once you own a home, many tax benefits become available to you:

Job

Employment is the cornerstone of the economy, and having a job has many associated tax benefits:

  • Working may qualify you for the refundable Earned Income Credit if you make low or moderate income.
  • Find out ways your employer can give you tax-free income. There are many ways to lower your taxable income, some of which can be optimized through an employer.
  • New job? Adjust your income tax withholding by claiming more or fewer allowances on your Form W-4use our free Tax Withholding Assessment Tool to find out if you need to update your allowances.
  • Discover deductible work-related expenses.
  • You may be able to claim employee expense deductions. Since the 2018 Tax Reform and Job Act, employee expenses are not deductible on current and future Tax Returns with a few exceptions. One of these is self-employed individuals.
  • Start saving for retirement; learn more about 401(k) or IRA savings plans to see how your employer can greatly optimize your savings through mutual 401K contributions. See Retirement below for more.
  • There is tax help for members of the Armed Forces.
  • If you are self-employed and/or part of the gig economy, learn about different benefits that you may be able to optimize.

Unemployed

Being unemployed and looking for a job has the following tax benefits:

  • Find out the tax effects of job loss and unemployment. Since unemployment compensation is taxable income, it must be reported on your tax return for a given year.
  • Discover some deductible job-search expenses, such as travel and transport expenses when traveling for interviews due to a job-search.

Retirement

When you retire, the income you have saved may or may not be taxed:

Death

"In this world, nothing can be said to be certain, except death and taxes," Benjamin Franklin said. When death comes, taxes follow. Consider these tax-related items when someone dies:

  • If property or money is inherited, the person who inherits it may owe an estate tax.
  • When you prepare and file a tax return on eFile.com, there's a box to check to indicate that you're filing the return for a deceased taxpayer. You can also enter the date of death on the return. Before you start, find out if the person is required to file a tax return.
  • Use Form 1310 to claim a tax refund for a deceased taxpayereFile this form.
  • If you also need to file previous tax returns for the deceased taxpayer, find, download, and complete tax forms for any tax year.
  • Don't have their tax information? You can request a free tax return transcript from the IRS.
  • The IRS may need your permission to receive a deceased taxpayer's information. Submit an information request with the taxpayer's full name, address, and social security number. Additionally, you will need a copy of their death certificate and either a copy of Letters Testamentary approved by the court or IRS Form 56, Notice Concerning Fiduciary Relationship, if there is no court proceeding.
  • If your deceased spouse was on a retirement plan, contact the employer or plan administrator to claim any benefits available to you. You should also review and change your beneficiaries if possible.
  • Protect any taxpayer's identity if it's used to file a fraudulent tax return. Make sure to send copies of the death certificate to the IRS to update the taxpayer's records and each credit reporting bureau so they can put a "deceased alert" on the taxpayer's credit card report. You may also need to review their credit report for any questionable activity. If you are writing and submitting an obituary to a newspaper or other publication, don't put too much information that could be used by identity thieves, such as an address, birth date, or mother's maiden name.

Other Life Events that Affect Your Taxes

The following events and situations may have an impact on your taxes. Review these pages to learn how to handle them:

Are There Life-Changing Events that Don't Affect My Tax Situation?

Life-related expenses that are not tax deductible include:

  • Burial, funeral, and cemetery expenses.
  • Credit card fees (non-business).
  • Home repairs are not deductible and should not be confused with home improvements.
  • Life insurance premiums (unless part of an alimony payment).
  • Rent payments.

Find more expenses that do not qualify as tax deductions.

How will my Life Changes Affect my Paycheck?

Use the free eFile.com Tax Withholding Assessment Tool to see if you need to update your tax withholdings. Learn how to optimize your withholding and keep as much of your hard-earned money as possible. Then, prepare and file with eFile.com and get the most out of your Tax Refund. Start Tax Preparing now!

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Additional Resources

  • If your recent life change has affected your finances, try these money-saving tips.
  • Learn how to save money when traveling for work or school.
  • Find out when your refund should arrive or be deposited using this free DATEucator.
  • See resources and information about tax savings and adjustments in tough times.
  • Tax planning: Use this free Tax Refund Calculator to estimate your taxes and prepare for next year.

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