Life changes have tax consequences
During your lifetime, you may get a job, go to school, get married, start a business, change jobs, have children, send children to college, buy and/or sell a home, get divorced, contribute to a retirement plan, or draw money out of a retirement plan. Some of these lead to deductions, and some of them are actually taxable themselves. If you’ve had any of these life experiences, contact Liberty Tax Service for tax information to determine how it impacts you.
• New marriages – If you are married as of Dec. 31 of a year, you are considered married for the whole year. Your filing status depends on your marital status.
• Births – Your child born on Dec. 31 is assumed, for tax purposes, to have lived with you the entire year. For each qualifying child, you can claim a dependent’s exemption of $3,800.
• Deaths – The same filing requirements that apply to individuals determine if a final income tax return must be filed for the decedent.
• Divorce – If you are divorced or legally separated as of Dec. 31, for tax purposes you are considered to be unmarried for the entire year.
• College attendance – The American Opportunity Credit is available again in 2012, for taxpayers claiming higher education costs, including required course materials. The credit will allow the taxpayer to claim up to $2,500 of the cost of college tuition and related expenses. Forty percent of that credit will be refundable. The lifetime learning credit gives a credit of 20 percent of qualified educational expenses, not exceeding $10,000, for a maximum credit of $2,000. Unlike the American Opportunity Credit, the Lifetime Learning Credit is available to graduate students and covers up to 20 percent of out-of-pocket expenses up to $10,000, for a maximum amount of $2,000.
• New job – If job expenses are incurred and not reimbursed by your employer, you may be able to claim them as employee business expenses.
• Retirement – Pensions and annuities are generally taxable when distributed. You must start withdrawing from a traditional IRA by April 1 of the year following the year you reach age 70 1/2.
• Owning a home – Points paid when you purchase your home are generally deductible in that year. Mortgage interest and real estate taxes paid on your home are deductible.