Most people think about taxes once a year. But the biggest changes to your tax bill usually come from life, not tax law. If something major happened this year, a few adjustments now can save you a surprise next April.
You got married
Your filing status for the whole year depends on whether you're married on December 31. Two incomes combined can push you into a higher bracket, so both of you should update your withholding with a new Form W-4. If you changed your name, update it with Social Security before you file.
You had or adopted a child
A new child can bring a child tax credit and possibly a credit for childcare costs. If your employer offers a dependent care account, a birth or adoption usually lets you enroll midyear. Get a Social Security number for your child early, since you'll need it to claim the credit.
You bought a home
Mortgage interest and property taxes may be deductible if you itemize, and the larger cap on state and local tax deductions makes itemizing worth another look. Keep your closing statement, since it shows costs that matter now and when you sell.
You sold a home
If you owned and lived in the home for at least two of the last five years, you can generally exclude up to $250,000 of gain, or $500,000 if you're married filing jointly. Records of improvements you made over the years raise your cost basis and lower any taxable gain.
You moved to another state
You may need to file returns in both states, each covering part of the year. States with high income taxes, including California, look closely at whether someone has truly left, so keep records showing when and where you moved.
You started a side business or changed jobs
New self-employment income usually means quarterly estimated payments. A new job with a signing bonus, or two jobs at once, often leads to too little withholding. A midyear check of your pay stubs catches it early.
You inherited money or property
An inheritance itself generally isn't federal income. Inherited property usually receives a new tax basis equal to its value at the date of death, which can greatly reduce tax when you sell. Inherited retirement accounts have their own rules, and most beneficiaries other than a spouse must empty the account within ten years.
You divorced or separated
Your filing status depends on your status on December 31. For divorce agreements made after 2018, alimony is neither deductible by the payer nor taxable to the recipient. Child support never is. Decide early who will claim each child.
The common thread
Each of these events changes what you owe or what you can claim. Updating withholding or estimated payments shortly after the change is far easier than fixing it at filing time.
We'd update withholding within a month of any big change, and we'd tell our tax preparer early in the year rather than on the day we hand over documents.