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9 Unexpected Things That Can Impact Your Taxes

Here's what you need to know about the unexpected tax changes that could surprise you this year.

By Adam Palasciano

Edited by Chris Kissell

Updated Sept. 24, 2024

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With tax season just over the horizon, it’s time to start thinking about how life changes might affect your tax return.

While you probably know that income plays a big role in your tax bill, there are other factors that can impact your taxes and surprise you.

These changes can significantly alter your tax bill. Here's what to watch out for if you hope to get ahead financially during the coming tax season.

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Getting married

Getting married can affect your tax filing status and tax rate. Couples can choose between filing jointly or separately.

Joint filers often enjoy more favorable tax brackets and larger standard deductions. However, in some cases — such as if one spouse had high medical bills over the course of the year — it might make sense to file separately.

If you are unsure of which option is best for you, consult with a tax professional.

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A shift in your filing status

A change in your filing status — such as going from single to head of household, or married to single — can significantly affect your tax situation.

Filing status helps determine your tax bracket, standard deduction, and eligibility for various credits.

Adding or subtracting dependents

If you welcome a new child or take on the responsibility of another dependent, you may qualify for valuable credits such as the Child Tax Credit or Earned Income Tax Credit.

On the flip side, if your child is no longer a dependent, you will lose those tax benefits, which can mean you will pay more in taxes.

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Higher or lower income

Income changes can impact your tax bracket and the credits or deductions for which you qualify. Earning a higher income could bump you into a new tax bracket, leading to a higher tax bill.

Conversely, earning less money may lower your tax bracket and make you eligible for additional credits.

Having educational expenses

Paying for education can lead to various tax credits and deductions that can reduce your tax bill.

The American Opportunity Tax Credit (a maximum amount of $2,500 per eligible student for tax year 2023) and the Lifetime Learning Credit (a maximum amount of $2,000 per return for tax year 2023) are two examples of credits that help offset the costs of qualifying education expenses.

In addition, if you are paying off student loans, you can deduct up to $2,500 of your interest on your taxes.

Having enough write-offs to itemize deductions

Deciding whether to take the standard deduction or itemize your deductions can greatly affect your tax costs.

If you have significant expenses — such as for medical bills, mortgage interest, or even charitable contributions — itemizing might save you more money. However, if your itemized deductions are less than the standard deduction, choosing the latter will help you pay less in taxes.

Keeping detailed records of your expenses can help you make an informed decision so you can maximize your deductions.

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Buying or selling a home

Buying or selling a home can have tax implications. When you buy a home, you may qualify for deductions related to mortgage interest and property taxes, which can lower your taxable income.

Selling a home can result in capital gains taxes, especially if the profit exceeds certain limits. It’s worth noting that you can avoid taxes on up to $500,000 in gains if filing jointly with your spouse, or $250,000 if filing on your own.

Making larger or smaller retirement contributions

Changes in retirement contributions can directly impact your taxes. Contributing more to a traditional 401(k) or IRA reduces your taxable income, which can lower your tax bill.

Conversely, reducing your contributions means you may lose out on potential tax savings.

Getting an inheritance

Receiving an inheritance can affect your tax return, although it depends on the type of inheritance.

Inherited assets such as an IRA will result in taxes due on distributions. On the other hand, you will benefit from a “step-up” to your “cost-basis” when inheriting a home or property. This means that you will only owe taxes on any gain in property value after you inherit it if you sell it in the future.

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Bottom line

Understanding the unexpected ways life changes can impact your taxes is crucial. Whether you get married, buy a home, or change your level of retirement contributions, these events can impact how much you pay in taxes.

Taking proactive steps now can help you prepare yourself financially for how these life changes might impact your tax situation.

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