A lot can change in a year. As a tax preparer, it’s important to know how those life changes can impact your clients’ tax returns. Here are some of the common changes your clients may have experienced since you saw them last year:
No matter when the couple got married during the year, they now have the option to file a joint tax return for that entire tax year. For the majority of couples, filing jointly is more beneficial than filing separately, though in rare instances filing separately may be the better choice. When in doubt, our Quick MFJ vs MFS comparison tool can help you quickly determine which filing option is best for your client.
Starting, quitting, or losing a job
Getting a new job during the year can lead to surprises come tax time, especially if there is a large difference in pay between the two positions. Ideally, though, your client has withheld appropriate amounts from both paychecks.
Losing a job is just as, if not more, impactful to a client’s tax situation, especially if they received unemployment benefits. Unemployment tax withholding is voluntary, and therefore, some clients are surprised to learn that they owe taxes on their unemployment benefits at the end of the year.
Having a baby
Welcoming a little bundle of joy also means those proud parents get to welcome the Child Tax Credit. At $2,000 per child under the age of 17, this tax credit can make a huge difference in the size of your clients’ refunds. $1,400 of the credit is also refundable. This means if your client’s taxes owed balance is $0 or they are receiving a refund, a portion of the credit will be added into their refund.
Divorce has several implications for a couple’s tax situations. First and foremost, they’ll no longer be able to file jointly after the divorce is final. Note that if the divorce is not yet final as of December 31st, they can still file jointly if they prefer.
Any dependents can only be claimed by the custodial parent (i.e. the parent who lives with the children for the majority of the year). This also applies to the child tax credit. If they have multiple children, some couples agree to split claiming them as dependents, especially if the kids spend nearly equal time with both parents.
Filing taxes after divorce can also involve surprising refunds or deficits if tax withholdings haven’t been changed accordingly early in the year.
Adopting a child
Like having a biological child, adopting qualifies taxpayers for the child tax credit. They’ll also qualify for a substantial tax credit of around $14,300. This tax credit is non-refundable, meaning that it can lower the amount of taxes they owe, but it won’t be added to their tax refund. The tax credit lessens or disappears altogether for families who make above a certain income.
These and all other life changes are accounted for in your TaxSlayer Pro software, making it easy to accurately file your clients’ taxes no matter how their life has changed this year.
This article was last edited on July 23, 2021.