17 Tax Filing Tips for Women Who’ve Had A Life Change

If tax filing tips women is on your radar, this short guide cuts through the noise. Here is what is worth knowing, and how to put it to work today.

Key Takeaways

• Marriage, divorce, side hustles, giving birth, getting sick , all these life changes trickle onto your tax return.
• Marriage, divorce, side hustles, giving birth, getting sick , all these life changes trickle onto your tax return.
• Yep, we’ve been through it this year.

Marriage, divorce, side hustles, giving birth, getting sick , all these life changes trickle onto your tax return. These tips can help.

Marriage, divorce, side hustles, giving birth, getting sick , all these life changes trickle onto your tax return. These tips can help.

Yep, we’ve been through it this year. Oh - I’m not talking about the pandemic. I’m talking about all the other real life sh*t that didn’t grind to a halt, some of it blissful, some not so much. Think marriage, divorce, giving birth, emptying your nest, surviving a costly health crisis, starting a business or side hustle, or retiring from/re-entering the workforce. All of it can impact your overall tax filing picture.

If you went through anything out of the ordinary in 2021, and we’re guessing (that pandemic, again) that you did, here’s a rundown of what to consider as you (or your tax pro) prepare to file.

A NOTE ABOUT STATE AND FEDERAL 2021 TAX FILING AND PAYMENT DEADLINES:

If you’re still not ready to turn in your homework by April 18, file an extension using Form 4868. That gives you until October 17, 2022 to file your 2021 return. (Yes, for those of you doing the math in your head, that’s six more months.) Note: The extension applies only to filing, not to paying. If you owe money, you need to pay it by April 18 for your federal return. To avoid possible penalties, estimate and pay any owed taxes by the filing deadline. State tax filing and payment deadlines may be different. Check your state tax agency for deadline information.

If You Lost Your Job

The $1.9 trillion American Rescue Plan Act of 2021 was signed into law on March 11, 2021. This brought some tax-relief measures to households across the country.

Thanks to the American Rescue Plan, we saw the extension of unemployment benefits on a state and federal level through Labor Day 2021. It’s key to know that unemployment benefits are taxable income (stimulus payments are not). If you received unemployment benefits in 2021, you should have received form 1099-G in the mail. It will show the gross amount of unemployment income you received and how much was withheld for taxes.

If it seems counterintuitive that you’re paying taxes on unemployment income because you are out of work and not bringing in income you’re not alone. And, depending on how long you were out of work, you may find yourself with a tax bill you can’t afford to pay. You still want to file your taxes by the April 18th deadline and work with the IRS on creating a payment plan.

If You Withdrew from a Retirement Account

The CARES Act opened the door to withdrawing up to $100,000 from your 401(k), IRA or similar retirement account as what numerous people were calling a “tax-free loan.” How’d that work? You could withdraw the money penalty free. If you were able to repay it within three years, you wouldn’t owe income taxes that you normally would upon making a withdrawal. However, now it’s tax time and it’s a little more complicated than that.

If you made a withdrawal, you have to report one-third of it as income over each of the three subsequent years starting with 2020. (You can report it all, but you must report at least one-third.) If you repay the funds during that three-year period (2020-2022), you can file an amended tax return now and the taxes paid will be refunded. But for now, it’s key to know that you’re on the hook.

If Your Relationship Status Changed

A change in relationship status may call for a change in your 2021 tax filing status (e.g. whether you file as single, head-of-household, married filing separately, married filing jointly). Your filing status determines your income tax rate, the amount you’re allowed to claim for the standard deduction, which credits you’re entitled to and more.

Your relationship status on the last day of 2021 , and every year , determines what filing status you can use. Strategically, you should pick the filing status that will save you the most in taxes. Some things to keep in mind:

Marriage

If you officially coupled up in 2021, the “married filing jointly” filing status is frequently more financially beneficial than choosing “married filing separately,” says CPA Ross Riskin, assistant professor of taxation at The American College of Financial Services.

There are, of course, exceptions. (It’s taxes. Of course there are.) Riskin notes that if you and your spouse are both high earners with similar incomes, the combination could push you into a higher tax bracket when filing jointly.

Also tread carefully if you’re dealing with student loans, particularly if you’re on an income-driven repayment plan such as an income-based repayment (IBR) or pay-as-you-earn (PAYE) plan. “If you’ve got student loans and are married to a high earner, filing separately may allow you to reduce your monthly loan payment by isolating the borrower’s income, but it may also come at the expense of paying more in taxes collectively,” Riskin says. “However, if you are on the revised pay-as-you earn (REPAYE) plan, then both spouses’ incomes will be taken into consideration when determining the monthly payment regardless of filing status.”

Divorce

If you got divorced in 2021 and are paying or receiving alimony, the Tax Cuts and Jobs Act of 2017 means it is no longer counted as taxable income (yay, if you’re the recipient!). Nor is it deductible for the person paying it (whomp, whomp). Your marital status on December 31, 2021 will affect how you file. If you aren’t officially divorced by the end of the year, you may still file your taxes jointly, which can save you both money.

Another thing to hash out is who claims the children as dependents. “Normally the custodial parent will claim the child,” Riskin says, “but it’s not uncommon for the custodial parent to release the exemption to the non-custodial parent, or for parents to alternate years when claiming the child on their taxes.” For 2021, the child tax credit has increased from $2,000 per child to $3,600 per child 5 years old and younger, or $3,000 per child 6 to 17 years old. Note: that temporary increase will not be the case in 2022 when the credit goes back to $2,000 per child.

Riskin says that the value in claiming the child may appear to no longer exist since dependency exemptions have been suspended under the Tax Cuts and Jobs Act. But claiming the child may allow you to claim other tax credits. For example, if you plan on claiming the American Opportunity Tax Credit for your college student, the child must be listed as your dependent on your return, regardless of whether or not you’re the parent paying for the college expenses.

MORE ON HERMONEY: Divorcing? How to Financial Protect Yourself When the S**T Hits the Fan

Death of a spouse

We’ve lost close to a million Americans and counting to COVID-19 alone. If your beloved passed away in 2021, you can continue to use the same filing designation you used when they were alive (e.g. married filing jointly) for your taxes, says CPA Sophia Duffy, assistant professor of business planning at The American College of Financial Services.

For the tax years after their death, however, you will need to adjust your filing status. The most financially advantageous is the qualifying widow status, which allows you to claim double the standard deduction of a single status filer. You’re allowed to use that on your 2021 tax returns if …

• You qualified for married filing jointly with your spouse for the year they died.
• You didn’t remarry in the tax year in which your spouse died.
• You claim a child (stepchild or adopted child) as a dependent. This does not apply to a foster child.
• You paid more than half of the expenses of maintaining your home.
• Otherwise you’ll need to file as single and/or head of household.

A spouse’s death also affects how you’re taxed if you sell property you inherited, most notably on investment account assets. “You get a step-up in basis on inherited property, which means you’ll pay lower capital gains when you sell the property, compared to what you would have if you sold the property when your spouse was alive,” Duffy says.

If you added or subtracted dependents

New baby, expanding the family through adoption, launching your kid into the real world, taking adult family members (like parents) under your wing … are all things that affect how you account for dependents when you fill out your tax return. For 2021, it may also mean additional stimulus dollars in your pockets via your refund (or a reduction of taxes owed).

Adding dependents 

The American Rescue Plan Act of 2021 increased the child tax credit from $2,000 per child to $3,600 per child 5 years old and younger, or $3,000 per child 6 to 17 years old. If you received advance Child Tax Credit payments, you will need to report the total received when you file your taxes. You should have received Letter 6419 from the IRS in January.

If you blended a family in 2021 and added older kids to the household who are still dependents (e.g. full-time college students), look into the Family Tax Credit, which is worth up to $500 per kid.

Then there are the stimulus payments. If you qualified (singles with income up to $75,000, married couples with incomes of up to $150,000 and heads of household with incomes of up to $112,500 qualified for full payments), you were eligible for rounds of stimulus. The first two were dispersed in 2020 (March and December). The third, dispersed in March 2021, provided $1,400 for dependents of any age.

If you had a baby in 2021, you are most likely eligible to receive the child tax credit if you live in the U.S. and your child is an American citizen.

MORE ON HERMONEY: Here Are Plain English Answers To All Your Stimulus And Unemployment Questions

Another note for divorced parents of college-age children: Just because one parent claims the child as a dependent doesn’t mean that only their information is reported for financial aid purposes. “When you’re dealing with divorced families, you can get to the point where as numerous as four parents’ finances , both parents and their spouses, if they remarried , are reported when you’re filling out financial aid applications at selective private colleges,” Riskin says.

Caring for other family members: 

The IRS’s definition of dependent isn’t limited to young’uns. If you’re caring for an elderly parent or another relative with special needs, Duffy recommends seeing if you are eligible for the deductions and credits for a qualifying dependent, such as the Dependent Care Credit or Credit for Other Dependents. And if you were using a Flexible Spending Account to pay for dependent care costs and were unable to use up all of those funds in 2021 thanks to the pandemic, you may roll unused funds from 2021 into 2022. Check with your employer, however. They have to accept these government-okayed changes for them to pertain to you.

Adoption 

If you expanded your family tree through an adoption that was finalized in 2021, the Child Adoption Credit may be worth up to $14,440 tax credit, depending on your family’s modified adjusted gross income. According to the North American Council on Adoptable Children (NACCA), parents can only use the credit if they have federal income tax liability. It’s key to note that the adoption credit doesn’t apply to adopting

Final Thoughts

The bottom line: a little research on tax filing tips women goes a long way. Compare your options, watch for seasonal offers, and never pay full price when a better deal is one click away.

Originally published at savingswitch.com.