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FOR IMMEDIATE RELEASE
As You Evolve, Your Taxes Will Too
Lohman Company Explains the Tax Impact
of Major Life Events
February 23, 2007 --
Getting married? Having a
baby? Moving? As major life events happen, it’s important to
keep Uncle Sam in the loop.
Your tax status,
exemptions, deductions and credits fluctuate as your life
circumstances change. Failing to account for these changes in
tax planning can affect your bottom line, says Cati Piorkowski,
tax services partner for Lohman Company, PLLC.
“You could miss out on a
weighty deduction, or worse, make a costly mistake that will
cause the IRS to come knocking,” she said.
So, how do you know when
you need to make a change? Piorkowski describes five life
events that will affect your income tax:
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Marriage Status -
Couples
who tied the knot in 2006 need to decide whether they should
file separately or jointly. Most couples file jointly to
achieve the best tax results. However, there are
circumstances when filing separately can be advantageous.
Taxpayers filing separately should be aware that since
Arizona is a community property state, income and expenses
generally must be split equally between the spouses
regardless of who earned the income or paid the expenses
unless they are attributable to separately owned property.
Couples who are legally separated at year-end under a decree
of divorce or separate maintenance are considered unmarried
for that tax year.
-
Kids
– Have you recently welcomed a baby into the world?
If so, you’re entitled to additional tax benefits in the
form of an exemption. The exemption for 2006 is $3,300 per
dependent, although the exemption is reduced or eliminated
for higher income taxpayers. You may also be eligible for
the Child Tax Credit of $1,000 per child or the Child and
Dependent Care Credit. Adopted children are always treated
as your own child while foster children will qualify as your
child if placed in your home by a qualifying agency or by
judgment, decree or court order.
On the other hand, if your grown children have left home,
you need to determine whether you may still claim them as
dependents. College-aged children are often still claimed
as dependents if the parents are supporting them
financially.
-
Buying or Selling a Home
-
First-time homeowners generally need to
itemize their deductions in order to enjoy maximum tax
benefits. The bad news: the process gets a lot more
complicated. The good news: your mortgage interest and
property taxes are deductible. In addition, if you made any
upgrades to your home last year to make it more energy
efficient or environmentally friendly, then you could be
eligible for other tax credits.
If you sold your home in 2006, you may be able to avoid
paying taxes on the profit you made. You can exclude up to
$250,000 of gain ($500,000 for married couples filing
jointly) you make on the sale of your principal residence,
as long as you have owned and resided in it for two of the
five years prior to the sale. If you are fortunate enough
to make a profit in excess of the excludable portion and you
owned it for more than a year, you will only be taxed at the
capital gains rate of 15 percent.
-
Employment Status -
Your
employment status directly affects your tax status. If you
received a large raise, you need to determine whether you
have been bumped into a higher tax bracket. Additionally,
if you take a job where you will be making considerably less
money, you may fall into a lower tax bracket. In either
case, it’s important to change your withholding to match
your tax liability. If you fail to do so, you could end up
paying the government much more than you expect, or you
could be lending your hard-earned cash interest-free to
Uncle Sam.
There are a number of other tax considerations related to
employment. For instance, if you had to move in order to
accept a new job, your moving expenses may be deductible.
If you have started a new business in 2006, there are
additional tax matters to take into consideration depending
upon whether you own a sole proprietorship, partnership or
incorporated business. If you work full- or part-time, in
addition to owning a business, you may still need to take
self-employment taxes into consideration. Operating
expenses, business-related travel, health insurance and
self-managed retirement plans may provide tax benefits.
-
Death – Benjamin
Franklin once said, “In this world, nothing can be said to
be certain, except death and taxes.” And in fact, even
death comes with its own set of taxes. Your estate
(basically, everything you own) will have to pay taxes if
its net value when you die is more than the estate tax
exemption equivalent. For 2006, that is $2 million. All
estate taxes must be paid before your assets can be fully
distributed.
“It’s important to talk with a tax professional to find out
exactly how these life events will affect your taxes,” said
Piorkowski. “We all have our own unique sets of financial
circumstances. What works for your best friend or co-worker may
not be the best approach for you.”
To find out how life events will affect your monthly
paychecks, visit
www.PaycheckCity.com, the nation’s most-visited payroll Web
site. This site offers a free paycheck calculator that allows
individuals to model "what-if” scenarios with their wages and
other paycheck figures. Users can determine the impact of major
life events on their take-home pay, and additional tools like
the W-4 assistant provide users with a print-out of the
withholding form and instructions to change their tax status.
About Lohman Company, PLLC
Founded in 2000, Lohman Company, PLLC is a certified public
accounting and business consulting firm offering professional
tax, audit, accounting and consulting services to
privately-owned companies in Arizona with revenues up to $200
million. Lohman Company, PLLC specializes in serving clients in
a wide range of industries including technology, manufacturing,
wholesale distribution, construction, real estate and services.
Lohman Company, PLLC is committed to providing the highest level
of proactive services to its clients within an atmosphere that
encourages camaraderie, intellectual challenge and work-life
balance for all employees.
For More Information Contact:
Lohman Company, PLLC
Stapley Center
1630 South Stapley Drive, Suite 108
Mesa, AZ 85204
Phone: (480) 355-1100
Fax: (480) 355-1130
Internet:
info@lohmancompany.com
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