An important part of tax planning includes understanding how changes to your personal life affect your tax situation. If life has thrown you a curve in 2017, or if a planned change is coming, here are things to consider this year:
- Getting married or divorced? Your filing status is based on your marital status. With a change in filing status will come a new tax bracket and potentially a new tax rate. Look at changing your W-4 to reflect the needed increase or decrease in withholding. Estimated tax payments may also need to be adjusted.
- Retiring? Review your estimated income for 2017. Will it be lower than previous years? Will you replace your wages with a pension or Social Security? If your income is substantially lower, tax deductions may be less beneficial. If your 2017 income will remain similar to the prior year, you may need to begin making estimated tax payments as tax withholding will end with your payroll checks. Is now the optimal time to begin claiming your Social Security benefits? Does it make sense to wait? Pushing off claiming Social Security can increase your benefits over your lifetime and your spouse’s.
- Moving? Are you moving to a new state? Review how your new state of residency taxes your income. All states have differences in how income is taxed and what deductions are allowed. Are you planning on selling or buying a new home with your move? Looking for a new job? You may have additional tax deductions.
- New job? With every new job comes new changes. Be sure you take advantage of new employer benefits including 401(K) employer matching, pre-tax flexible spending accounts or employer reimbursement plans. Unless your prior employer has a stand-out retirement plan, consider rolling your retirement account to your new employer plan or out to an IRA account. It’s easier to keep track of your retirement plan accounts in one place.
- A child is arriving? Child care credits and a dependency exemption may lower your 2017 taxes. Check if your employer offers a dependent care benefit program to pay your childcare with pre-tax dollars.
Take advantage of your new opportunities with good planning while alleviating the stress of an upcoming change. For more mid-year tax planning strategies, click here.
Melinda Nelson, CPA