Opportunities for Tax Planning When Your Life Circumstances Change
April 21, 2023
Opportunities for Tax Planning When Your Life Circumstances Change

Life is an adventure for all of us. Changes you have anticipated and others unforeseen can make a significant impact on your financial situation.  No matter how sizable your rainy-day fund is, there will be times your accountant can provide you with invaluable information to make the best decisions for your present situation, your future and beyond. 


As we approach April 18th, think about the CPA who prepared your return this year. Maybe they were crucial in helping you sort out multi-state tax liabilities, take advantage of credits you didn’t know existed, work through a new tax strategy, or find you a welcome deduction. Your accountant is available year-round, not only during tax season, to help you implement the best tax strategies and plan for your financial future. 


When are the times that you could benefit from the advice of your accountant? Let’s take a look at these life events that will require decisions that will affect your financial situation and tax planning when your life circumstances change. 




Combining finances, like income, debt, bank accounts, and retirement accounts, will most likely affect your future tax returns. 


Getting married changes your filing status and often your tax bracket, if you choose to file jointly. Filing taxes as a married couple results in a larger standard deduction on your return. Combining your income may even decrease your tax bracket. Sometimes couples have a smaller combined tax liability if they file married filing singly. Your accountant can advise you on the best option for your circumstances.  


Owning a small business can present you with more questions. Small business owners may want to add their spouse as an employee or co-owner. There are benefits and drawbacks to consider before making any changes. 


If you are soon to be married, it is wise to reach out to your CPA for tax planning.




If your family is growing, make sure to put tax planning on your pre-baby checklist. Your accountant can advise you on child tax credits that may be available for you to take. If you are adopting a child, there are other tax credits available.


Tax planning when your life circumstances change with a newborn is important. As you think about your children’s future education, consider tax-advantaged strategies to put money aside like 529 plans or education savings bonds. 


Buying and selling a home


As your family grows and jobs change, odds are you will be buying or selling a home. When purchasing a new home, you may find that itemizing deductions like mortgage interest and property taxes on your tax return could decrease your taxable income. With the increase in the standard deduction in recent years, you may find that itemizing will not benefit you. Your accountant will be able to tell you which strategy will best suit your situation.


Taxes are always a part of buying and selling properties. Gains on sales of properties must be reported on your tax return. Calculating the actual gain, however, is not always straightforward. Make sure you take into account major improvements to the property that would add to its basis. Selling expenses can also affect the gain reported on your return. 


It is excellent advice to consult your accountant when you are considering selling a property. You could be eligible for certain gain exclusions based on how long you have owned the property and occupied the property and whether it can be considered your primary residence.




Tax planning when your life circumstances change is all about being prepared for anything. Divorce not only turns your personal life upside down, but it can have major consequences to your financial situation for years to come. If you are going through a divorce, it is imperative to reach out for tax advice to your accountant. Topics you will need to consider may include dividing assets, child support, alimony, and the effect on your tax filing status. 


If children are involved, certain decisions will need to be made such as who claims the children as dependents. Proceeds from the sales of property or businesses that are part of the settlement may generate capital gains. Work with your accountant throughout the settlement process to see how these changes will affect your taxes so you are not caught unaware. 




Retirement is a time when people’s tax situations can change drastically. Many factors are in play here.  When your regular paycheck ends, what will your budget need to be to support the life you want to lead? When should you begin taking social security?  Should you first consider tapping your taxable investment accounts for support, allowing your tax deferred accounts to increase in value?  If you find yourself with tax deferred retirement funds and you think your tax rate in retirement may be higher than it is today, maybe a Roth IRA conversion would be a good move. What should your strategy be? 


Your accountant can help you with these questions and many more than we can include here. The point is that the resources you have available in retirement depend on careful planning years before you head home on your last day. Taxes take a big bite of your income when you are working. It’s crucial to know what you’ll be facing when you are no longer drawing a paycheck. 


If you are a small business owner who is retiring, are you planning on passing your business on to the next generation in your family? If you are selling your business, how you structure the sale will directly affect your tax liability.  Your accountant can help you make the right decisions about the disposition of your business so that your time in retirement can be some of the best years of your life. 




The loss of a loved one has not only a deep emotional impact, but can also have significant tax ramifications.  Your accountant can help you understand your tax obligations when inheriting cash, retirement plans, and property, make sure you pay your required tax as well as file any inheritance or estate returns that may be required.


Regarding your own estate planning, be sure you and your spouse are aware of all jointly owned assets and how you have designated beneficiaries on those assets. You do not want to go through probate for assets that mistakenly thought you jointly owned.


The Takeaway


When something big happens in your life, it’s a pretty sure bet that Uncle Sam wants a piece of the action. A new job, the birth of a baby, winning the lottery, a serious illness and necessary medical leave – tax planning when your life circumstances change is necessary! These are the times when your accountant is ready and able to provide you with important advice to navigate life’s twists and turns. Together you can implement a tax strategy that will ease your tax burdens and will give you peace of mind for the future.



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