An employer is required to send employees a W-2 for any income paid to them during the year, regardless of amount. If you’re doing freelance or contract work, the business that hired you must send you a form 1099 if it paid you $600 or more over the course of the year; however, you’re required to report any income on your tax return — whether you received a 1099 or not. This is important because with most freelance and contract work, taxes aren’t taken out in advance. You need to plan for them by saving a portion of every check so they do not surprise you come April.
It’s worth your money to talk to a tax adviser because that person can also show you how to offset a portion of what’s owed with deductions stemming from your new side job. For example, you may be able to deduct mileage, supplies, a portion of your cellphone charges, etc.
Caring for an aging parent
I’ll bet you didn’t know there was a tax perk here, but there may be if you meet a support test: Essentially, your parent becomes your dependent if you provide more than half of his or her support. Mom or Dad doesn’t even have to live with you, says Steber: If your parent is in a nursing home or care facility and you’re footing half that bill, you’ll likely pass that test. That means you could qualify for a dependent exemption as well as a deduction of medical expenses that you pay. One last caveat: Your parent can’t earn more than the exemption amount — $3,700 in 2011 — excluding Social Security.
Birth of a child
You can claim your child as a dependent, which could give you the same exemption we talked about above — $3,700 per dependent. You’ll also get a Child Tax Credit of up to $1,000 per child. If you adopted, you get to go one step further: You may be eligible for a refundable credit for qualified expenses, up to $13,360 per child. In most cases, if you’re married, you must file a joint tax return to capture adoption tax perks.
New home purchase
This is a big life change, and it leads to significant tax changes. If you have a mortgage on your home, you’ll likely be able to deduct mortgage interest and property taxes. That can shift you away from the standard deduction — generally taken by people who don’t own homes and don’t otherwise have a lot of deductions — and into itemizing, which opens you up to a host of other deductions, says Steber.
For one, you should start logging charitable contributions, which can be write-offs. You may also want to carefully track medical expenses to see if they’ll add up to an amount large enough to deduct (you can deduct medical expenses that exceed 7.5 percent of your adjusted gross income).
“When you buy a house, that changes the game in terms of your tax profile, and triggers the ability to itemize,” explains Steber.
If you changed your name, make sure you notify the Social Security Administration. Then understand that whether you file separately or jointly, you have to deduct the same way — meaning you both either itemize or take the standard deduction.
Finally, don’t be scared of the so-called marriage penalty. It rarely kicks in, and in many cases, marriage can lower your tax bill because it may pull a higher-earning spouse into a lower tax bracket. (However, if you’re both high earners with nearly equal incomes, you may end up paying more.) You should also check your current withholdings after getting married, just to make sure they’re still correct. The IRS has an easy calculator on its website to help you.
This article originally appeared in the Rochester, MN Post Bulletin.