Tax season can be a challenging time, particularly for newlyweds and new parents navigating major life events like a recent marriage or the birth of a child.
Newlyweds and new parents must understand the changes these milestones bring to their tax situation. With the deadline to file taxes for 2024 quickly approaching, it’s crucial to stay informed.
AP News offers expert advice on how to manage your taxes effectively, including tips on deductions, credits, and essential paperwork. Staying organized and understanding your options can make the process much smoother during this exciting, yet busy time.
Stay Organized with Your Documents
One of the first steps to a smooth tax season is keeping your documents organized. Having your tax paperwork stored in a secure digital folder can make it easier to access when the time comes.
Certified financial planner Tyler Horn suggests taking pictures of your documents and storing them digitally for easy retrieval.
Just take a picture with your phone, send it and keep it in that secure folder on your computer. That way you have everything together – Horn said.
The IRS recommends keeping your records for at least three years and up to seven, depending on your situation.
For those who’ve changed their last name after marriage, it’s crucial to update your information with the Social Security Administration (SSA).
Your tax return must match your Social Security number, and failing to make the change can result in discrepancies on your return. Many newlyweds forget this step, which can lead to mistakes when filing.
That’s something that people don’t necessarily think about, and when they do think about it sometimes it’s too late – Said Henry Grzes,
lead manager of tax practice & ethics for the American Institute of CPAs. Be sure to update your name well before filing to avoid any last-minute issues.
Decide Whether to File Jointly or Separately
A significant tax decision for newlyweds is choosing between filing jointly or separately. Filing jointly generally offers access to more tax credits and deductions, but there are instances where filing separately could be beneficial.
Keep in mind that if you are married by December 31, the IRS considers you married for the entire year, regardless of when you tied the knot. In most cases, filing jointly tends to make the most sense, but it’s important to assess your specific situation.
If you’ve chosen to file jointly, don’t forget to update your W-4 form with your employer. This form determines your tax withholding, and by updating it, you’ll reflect your new marital status and ensure the correct amount is withheld from your paycheck.
It’s important to review this early in the year to avoid any surprises come tax season.
Know the Available Tax Credits and Deductions
Understanding the tax credits and deductions available to you is essential for newlyweds and new parents. Married couples can take advantage of credits like the Earned Income Credit, American Opportunity Credit, and Lifetime Learning Credit.
You’ll also need to choose between the standard deduction or itemizing your deductions. The current standard deduction for married couples is $29,200. Itemizing may be beneficial if your total deductions exceed this amount.
However, be aware that if you qualify for the Earned Income Credit as a single filer, this credit might no longer apply if you file jointly with your spouse. Grzes recommends consulting with a tax professional ahead of time to avoid surprises.
Obtain a Social Security Number for Your Baby
First-time parents must obtain a Social Security number (SSN) for their child to claim them as a dependent on your tax return. Without this number, you won’t be able to access valuable tax credits.
If you’re going to claim your child as a dependent, you have to have a Social Security number and put that number on the return. Otherwise, the IRS is going to deny you – Grzes said
Hospitals often assist with the registration process, but you can also apply online or visit your local SSA office.
Tax Credits for Parents
As a parent, there are several tax credits available to help ease the financial burden of raising children. These include the Child Tax Credit, Childcare Credit, and Adoption Credit.
Parents may also continue to qualify for the Earned Income Credit, which is based on your income and the number of children you have.
The Earned Income Credit clearly provides a significant refund, and by having a child, you could increase the amount of income that you could earn and still qualify for that credit – Grzes said
Parents can further optimize their tax situation by utilizing tax-free accounts like Flexible Spending Accounts (FSAs) and 529 savings accounts.
FSAs allow you to set aside pre-tax dollars for healthcare and childcare expenses, while 529 plans help you save for future education costs.
These accounts can provide significant tax relief, and it’s worth ensuring you’re maximizing your opportunities, Grzes added.
