5 Life Events That Can Affect Your Taxes

Think back to your last big life change: Whom did you tell first? Chances are it wasn't Uncle Sam.

"Taxes don't need to be the first thing you think about, but they shouldn't be the last thing either," says Hayden Adams, CPA, CFP^®, director of tax and financial planning at the Schwab Center for Financial Research. "Many of life's major milestones, like getting married or having a baby, can affect your taxes—both positively and negatively."

With that in mind, here are five big life events and how you can respond from a tax perspective.

• Marry
• Buy a house
• Have a child
• Divorce
• Retire

Marry: If you'll file taxes jointly, review and adjust your withholding amounts, if necessary, based on your household income. "Some two-income couples could move into a higher tax bracket and potentially face a bigger tax bill," Hayden says. "On the other hand, some single-income households may be able to reduce their withholding."

Buy a house: If itemizing makes sense, you can deduct your mortgage interest on loans up to $750,000—and state and local taxes up to $10,000 ($5,000 per person if married but filing separately)—and may wish to reduce your withholding amounts accordingly. "Having less tax withheld from each paycheck can free up more money for retirement and other savings goals," Hayden says.

Have a child: Child and adoption credits are another reason to potentially reduce your withholding amounts. "Reducing your withholding to account for the credit is like receiving the credit in advance," Hayden says. "Otherwise, you have to wait to file your taxes to see the benefit."

Divorce: Once your divorce is finalized, you may need to update your withholding based on your individual income and filing status. For example, a higher earner who previously filed jointly may need to withhold more as a single filer, since different tax brackets apply.

Marry: If you plan to file your taxes jointly, the IRS expects you to submit an updated Form W-4 to your employer within 10 days of your marriage date.

Divorce: Once your divorce is finalized, submit an updated Form W-4 declaring your new status as a single filer to your employer within 10 days of your divorce date.

Marry or Divorce: If you change your name, report it to the Social Security Administration (SSA) and your employer prior to filing your taxes. Your tax refund could be delayed if the name on your tax documents doesn't match the one on file with the SSA.

Retire: If you no longer receive a paycheck from which taxes are automatically withheld, you may need to make estimated payments to the IRS throughout the year. Some income sources, such as IRAs and annuities, can automatically withhold a certain percentage of your distributions for tax purposes. But if you sell any assets for a capital gain, withholding is not generally done, which means you're on the hook for making payments on estimated taxes.

"Estimating your tax liability can be tricky, especially if you have taxes withheld from some income sources but not from others," Hayden says. "It's best to work with a tax advisor who can help you avoid an underpayment penalty come Tax Day."