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When Life Changes – Your Taxes Might Too04.04.14

You may be used to seeing “overlooked tax deductions” and “Top 10” lists during tax season. The tips in those might not apply to you, but there’s one thing that every taxpayer can watch for: life changes. And since life tends to change from year to year, it’s worth looking for recent experiences that might help you get more out of your tax return.

Here are the top three types of common life changes that can help reduce your taxes. If you already filed your tax return, and you see something that is applicable, you can always go back and amend your return for up to three years to get credit for the change.

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), Returning Dependent (Child moving back in) New Self-Employment, New Education Expenses
It’s increasingly common today for taxpayers to care for additional family members 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 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 available, including both deductions and tax credits. 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, Job Loss, Retired
Taxpayers who have moved or retired need to take many tax considerations 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.

Tax changes are very common every year and are a part of tax-filing life in America. Take advantage of them where appropriate. As you organize your tax documents in preparation for filing, take a bit of extra time to reflect on your year and look for those changes, and talk with your Jackson Hewitt Tax Pro if you need more information before, during and even after your tax return has been prepared.