Life events happen and they usually have significant impacts on your tax situation.
Did you know that your marital status as of December 31st of the tax year determines your filing status? If your wedding to your beloved takes place on December 31, then you must file Married, Joint or Separate. Likewise, if your divorce judgment is entered on December 31, then you must file Single or Head of Household. Each of these filing statuses carries a different standard deduction amount. Even if you itemize deductions, there are rules for splitting those if your filing status is Married, Filing Separate.
Having a child probably has the most impact on your tax situation. You get an additional dependency exemption ($4,050 for 2016) and likely become eligible for $1,000 tax credit. If you paid for that child to be cared for during that same tax year, then you also likely qualify for child care credit, which ranges from $600-1,050.
On the other hand, sometimes your children age out of tax situations. For instance, my son will turn 18 in 2017, which means I no longer get to lay claim to that $1,000 child tax credit (ends at 17). Additionally, since he no longer lives with me and isn’t going on to college, I won’t even get to claim that $4,050 dependency exemption. Just as I’m getting excited to get him moving on with his adult life….
The most significant changes I’ve seen to tax situations are those of the self-employed. Self-employed tax payers face the most risk when it comes to tax. If you’re self-employed, you should absolutely be in close contact with a tax preparer well-versed in small business deductions. Your tax preparer should also be able to advise you when it’s appropriate for you to make the switch from sole proprietor to LLC or sub-chapter S-Corp taxation. Huge tax savings are available to the small business owner but you need to be aware of what they are and how to get them.
There are other events such as deaths in the family, job changes, increases and decreases in pay, selling/buying a house, adoption. This list could go on and on. My general advice is that any time you make any major changes, consult your tax preparer for some quick advice.