How Does Marriage, Owning a Home, or Parenthood Impact My Taxes? Find Out on the Money Confidential Podcast

Milestone moments, such as getting married, buying a home, or having children, can change the way you file your taxes as much as they can change your life. It's important to know the tax implications of these major life events because you can take advantage of some of the benefits that come with them—but you can also run into trouble if you aren't aware of the restrictions. This week's episode of Money Confidential covers both.

For the fourth installment of our "Taxes in Ten" series, we talked with Gretchen (not her real name), who hit a bump in the road when she filed separately from her husband at the time and continued contributing to a Roth IRA.

Gretchen and her now ex-husband decided to file separately because he was enrolled in a loan forgiveness program that had an income-based repayment plan. If they had filed jointly, both of their incomes would have been taken into consideration when calculating the monthly payment for that plan. In the end, however, the trouble didn't stem directly from the choice to file separately, but instead from Gretchen's continued contributions to her Roth IRA.

"What Gretchen hadn't realized is that while the income limits for individuals who are eligible to contribute to a ROTH IRA is $140,000 for single filers and $208,000 for married couples filing jointly, at least in the tax year 2021, for married couples filing separately, the income limit is just $10,000," says Money Confidential host Stefanie O'Connell Rodriguez.

Gretchen didn't get an alert that she was doing anything wrong until two years in—meaning that she then had two years of over contributions that she had to fix.

Slip-ups like this can lead to major financial setbacks, but many milestone events in life can actually come with significant benefits come tax season—like a tax break when filing jointly as a married couple. To find out more, O'Connell Rodriguez tapped Kristin Myers, editor-in-chief of The Balance, and Caleb Silver, editor-in-chief of Investopedia, to discuss all the tax implications that come with getting married, owning a home, and having kids.

To take advantage of the tax breaks that come with marriage, it's important to know the proper timeline to follow. "The IRS website is really great at providing a lot of resources and tools and will answer the questions: Hey, I got married in September, can I file jointly now for the following year? The answer is yes. Or, I got married on February 15, can I file jointly on my taxes this coming April? The answer is no," Myers says.

There may, however, be some instances in which the preferred choice is to file separately. As Silver says, a couple might want to consider filing separately if one of them comes to the relationship with a lot of money or a heavy income that already has some tax burdens associated with it. "You just have to really do that cost-benefit analysis to see if it does make a real difference, or if you're just over-complicating things," he explains.

Buying a home is another major life event that can afford you some tax breaks, with the allowance to deduct things like property tax payments, mortgage interest, and private mortgage insurance. Similarly, selling a house can also affect your taxes—but things can get pretty complicated. As Myers explains, the tax implications depend on "how big the gains were [from selling], and if you were married or if you are single, if the house you sold was an investment property, and if that house you sold was actually your primary residence." In summary, if you sold your house, "there is definitely the potential that you could owe money on it," she adds.

Marriage and homeownership aside, having kids or dependents is another can of worms come tax season—but there are benefits once you sort through the confusion.

To start, Myers says the first thing anyone who has a child should do is claim them as a dependent immediately. "You have something called your W4 form, which details how much money your employer should withhold from you and send off to the government—and having a child helps change that number," she says. "There's also the child tax credit that you can also potentially claim. And you can, and this is a really big one, start saving for your child tax-free for their college in a 529 savings plan."

Silver also notes the American opportunity tax credit and the lifetime learning credit—important options to know about for parents sending their kids to college. "Those offset your tax bill dollar for dollar compared to just a standard tax deduction," he says.

For more on the tax implications of major milestones, check out episode four of Money Confidential's six-part series, "How does marriage, owning a home, or parenthood impact my taxes?" on Apple Podcasts, Spotify, Amazon, Player.FM, Stitcher, and wherever you get your podcasts.

Read the full transcript.