When you get married, your tax filing choices change immediately. Couples can file jointly or separately, and the decision affects tax brackets, credits, and deductions. Filing jointly often provides benefits, though couples with large differences in income sometimes face what's known as the "marriage penalty."
Another key step is adjusting your paycheck withholding. If both spouses earn wages, the combined income may push you into a higher bracket. Updating your W-4s prevents an unpleasant surprise at tax time.
Marriage is also the right time to update beneficiaries on retirement accounts, insurance policies, and estate plans. Recent changes under OBBBA, the new federal tax law, expanded the standard deduction and increased the child tax credit, which can directly benefit married couples and families.
Divorce shifts your filing status to single or head of household if you qualify. That change alone alters brackets and credit eligibility. Child custody agreements also matter for dependency claims, so it's crucial that both parties understand who is eligible to claim children on their returns.
Alimony and child support are treated differently under current law. For divorces finalized after 2018, alimony is no longer deductible for the payer or taxable to the recipient. Child support has never been deductible or taxable.
Dividing retirement accounts adds another layer. Using a Qualified Domestic Relations Order (QDRO) allows transfers without immediate tax consequences or early withdrawal penalties. Property transfers that happen as part of the divorce settlement generally avoid tax, though the recipient carries over the original cost basis.
Retirement does not mean the end of tax planning. Income often comes from several sources, including Social Security, pensions, IRAs, and investments -- and how you draw from them affects your tax bill.
Social Security benefits may be taxable depending on your combined income. For some retirees, it makes sense to delay benefits in order to receive larger payments later. For others, claiming earlier provides income security. Spousal and ex-spousal benefits also come into play, and knowing the rules can help maximize household income.
Required Minimum Distributions (RMDs) from traditional retirement accounts start at a set age and must be factored into your plan. OBBBA also introduced a senior bonus deduction that can reduce taxable income for older adults. Healthcare costs, including Medicare premiums, add another layer to retirement tax planning and are worth building into your projections.
Do life changes automatically change my tax situation?
Yes. Marriage, divorce, and retirement each trigger changes to your filing status, income, or benefits, which directly affect your taxes.
Is alimony deductible or taxable?
For divorces finalized after 2018, alimony is neither deductible for the payer nor taxable to the recipient. Earlier agreements may follow different rules.
Are Social Security benefits always taxable?
Not always; taxation depends on your combined income. Coordinating distributions and other sources of income with your Social Security benefits can help minimize taxes.
Major life events bring both emotional and financial adjustments. While the personal side of marriage, divorce, or retirement can feel overwhelming, the tax side doesn't have to be. Myrick CPA works with clients nationwide through secure online services, giving you clear guidance no matter where you are.
If you're facing one of life's big transitions, or have questions about how the new federal tax laws as outlined in OBBBA may affect your tax situation, schedule a consultation with Myrick CPA. A thoughtful and strategic tax plan provides stability and peace of mind when you need it most.