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Britt Erica Tunick is an award winning financial journalist who has spent the past 17 years writing about virtually every aspect of finance. She has mastered the art of boiling down complicated financial topics for readers to understand. |
Taking a few minutes to examine potential changes to your tax situation ahead of time could make next year's tax season far less painful when it finally arrives. If changes have occurred within your family you could end up owing much more than you thought so don't be surprised with a big tax bill co The Middle of the Year is a Good Time to Determine Any Tax Changes
The Middle of the Year is a Good Time to Determine Any Tax Changes
By Britt Erica Tunick
Odds are good that you won’t begin thinking about your 2016 taxes until early in 2017. But taking a few minutes to examine potential changes to your tax situation could make next year’s tax season far less painful when it finally arrives.
Depending on where you are in your life, there are many changes that can take place within any given year that can have an impact on what you ultimately owe the government from a change in your marital status, to receiving a raise or even just sending a kid off to college. If any of these changes mean you will ultimately owe more in your taxes it is always better to set that money aside or send it off to the government now, versus being hit with an unpleasant surprise in the form of a hefty tax bill next April.
Following is a list of some of the life events that can impact what you will owe for your taxes for this year.
- Getting Married or Divorced. While getting married often means a bit of a tax break if a couple files jointly, getting divorced typically means a higher tax bill since you will have to resume filing as a single payer. In the case of divorce, if children are involved alimony will also impact your taxes as a deduction for those paying it and as additional income for the party receiving it.
- Changing jobs. Since most 401k plan administrators will only let you keep money with them if you have over a certain amount invested, there is a good chance you will need to roll your 401k holdings into a rollover IRA. If this is something you need to do, be sure to have the rollover check paid directly to the bank where you are opening your rollover IRA instead of yourself, otherwise you will be taxed on that money. It is also important to roll over such funds quickly, as holding on to such a check for more than two months can also trigger a tax or leave your paying a penalty.
- Having a new baby or sending an older child off to college. While having a new baby means an additional tax deduction, when an older child heads off to college they can only continue to be used as a dependent on your taxes if they are a full-time student or until they are 25 years-old. Also, depending on how much you earn, you could potentially be eligible for a tax credit of up to $2,500 per year for a standard four-year degree through the American Opportunity Tax Credit.
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