Life Milestones and Their Effect on Your Taxes

The breadth of our life experiences and changes that occur as we mature always have wider tax implications. The major milestones of our lives bring both tax benefits and liabilities. Almost every milestone we reach, whether it includes the excitement of change or the sadness of loss, directly or indirectly affects our status as a taxpayer.

For example:

Getting married

Whether you file separately or jointly, your filing status will change when you marry. You will be able to claim a new tax exemption and adjust your paycheck deductions. Also, working couples have an advantage over single taxpayers, whose earnings reach the higher tax brackets sooner.

Having children

new baby tax benefitsYour little bundle of joy becomes a tax exemption for the entire tax year. With the 2 AM feedings come advantages like child tax credits and other benefits. For example, when both spouses return to work, there is the Child and Dependent Care Tax Credit to pay a babysitter during the workday. Also there are tax credits and other breaks when the child goes off to college.

Losing your job

Lose your job and you immediately enter a lower tax bracket. Worse news is that you will be taxed on unemployment benefits and will be liable for taxes on severance pay and vacation time your former employer bought back. Make sure your former employer sends you that W-2. Keep track of job search expenses- they could be tax deductible.

Divorcing or Legally Separating

You are considered unmarried at the end of the tax year when separated under a divorce decree or a separate maintenance agreement. Alimony you receive or pay is either taxed or can be deducted, depending on whether you are the receiver or the donor.

Likewise, whichever divorced parent has custody of a child for the greater part of the calendar year will be eligible for dependency deductions and other tax benefits accruing from having a child. Although alimony can be tax deductible, child support is not.

Moving to another state

moving to another state tax savingsHeading out for that new job and fresh start? You can deduct some of your moving expenses for which your employer will not reimburse you . You will need to deal with the tax rules of both your former and your new state and might end up filing two state tax returns. Also, resist the temptation to cash in your former employer's retirement plan. Otherwise, you could be looking at a high income tax rate on the proceeds.

Saving for retirement

Most likely, your Social Security benefits will not be enough to assure a comfortable retirement. Whether you participate in a 401(k) or traditional IRA, your contributions will reduce your yearly income tax bite. Your retirement years will also be taxed as the government takes back some of that Social Security money for income tax and Medicare coverage. You will also need to plan those traditional IRA withdrawals beginning at age 70 years six months.

Meanwhile, in between milestones…

Life happens in between all of these milestones. We get busy and sometimes forget the tax implications of our happiest and saddest moments. Reach out to us at Dukhon Tax and Accounting if there is any way we can help you focus on these milestones without worrying about your taxes.

Don't Want to Buy Health Insurance? Look Into Market Place Hardship Exemptions

If you can afford health insurance but you don't wish to buy it expect a higher federal income tax bill for 2015. Under the Affordable Care Act, unless you have a health coverage exemption, the IRS will assess an additional penalty, using the higher result of the following two criteria:

  • 2% of your yearly earnings: The amount of income above about $10,150, the tax-filing threshold, is what you use to calculate the penalty. The amount is capped according to what the IRS figures is the "average bronze plan premium."
  • $325 per person for 2015--$162.50 per child under age 18: The maximum family penalty per family using this method is $975.

health tax exemptions

What qualifies as health coverage--and what does not

Most health plans, including any Marketplace plan, or individual insurance plan you already have qualifies as coverage. Any job-based or retirement plans, Medicare Parts A or C, and TRICARE plans for military retirees also qualify.

Not all plans offered outside the Marketplace will qualify for minimum essential coverage, though.

Plans that would not qualify include:

  • health plans that cover a fixed, limited term
  • health plans that have fixed benefit restrictions
  • Medicare supplemental plans only, like Part D and Medigap
  • certain Medicaid schemes covering only specific benefits
  • limited-benefit plans, e.g., vision only, dental only

Exemptions and how to get them

For tax year 2015, you can apply for an exemption to avoid paying the tax penalty. The exemptions are income, health, and group membership related. They also cover anyone serving a prison sentence, U.S. citizens living abroad, and certain non-citizens.


You could qualify for an income-related exemption if:

  • the least expensive health coverage available (Marketplace or job-based) would amount to more than 8.05 percent of your household income
  • you do not earn enough to be required to file an income tax return

Health coverage related

These apply when:

    • your lack of health insurance coverage was for no more than two consecutive months
    • your home state failed to expand its Medicaid program to meet the requirements of the Affordable Care Act, but if it had, you would have qualified

Group membership related

Certain groups are exempted:

    • members of a federally recognized Native American tribes
    • members of a recognized health care sharing ministry
    • religious sects that object to health insurance, Medicare and Social Security

Hardship exemptions

Some life situations can prevent you from getting health insurance. Examples of hardships that qualify include homelessness, eviction or foreclosure, domestic violence, natural disaster, family tragedy, etc.

To qualify for a hardship exemption, you must complete a paper application and mail it to the Marketplace. For a list of qualifying hardships and instructions on how to apply, go to the webpage.

Loss of previous coverage

Likewise, if your insurance company canceled your plan, and you believe other Marketplace plans are unaffordable, you can apply for an exemption. The above-mentioned 8.05 percent of the household income criteria applies.

You can apply for this exemption either on your 2015 income tax return or completing a separate Marketplace exemption application. Download the application forms and instructions from the website.

Need some help?

Your health coverage now affects your 2015 federal income tax return. The fees for not having health insurance could be another unexpected financial hit. Need some help or advice on addressing tax implications on yourself, your family or your employees? Dukhon Tax and Accounting has the expertise and experience to help you through tax year 2015 and beyond with the plans and strategies you need for the best tax planning.

Avoiding Tax Identity Theft

"Identity theft is one of the fastest growing crimes nationwide, and refund fraud caused by identity theft is one of the biggest challenges facing the IRS."…IRS Tips for Taxpayers, FS-2014-2, January 2014

According to an IRS report, Mauricio Warner, a Georgia resident, had a $10 million tax fraud and identity theft operation underway before he was caught and convicted. Warner used the names and social security numbers of online victims who "were told they could submit an application for an 'Obama stimulus payment' or 'Free Government Money.'”

Warner was sentenced to 240 months in federal prison and three years supervised probation, ordered to pay over $5 million in restitution, and forfeited his $4.1 million bank account.

The IRS has been aggressive in tracking down identity thieves and criminals like Warner. Its Identity Theft Clearing House since its inception in 2012 has pursued over 7,600 leads involving 1.47 million fraudulent returns amounting to almost $7 billion.

Avoiding Tax Identity Fraud

If you're the victim of a tax-identity theft, your tax return may only be the beginning. The IRS recommends the following precautions:

Don't fall for scams

tax fraud identity theftAny email addressed directly to you claiming to be from the IRS is fraudulent. The IRS never contacts taxpayers by email or social media. They do not use the web to demand payment or offer refunds to taxpayers. Forward suspicious email to [email protected].

Likewise, unexpected phone calls from someone claiming to be an IRS agent are impersonation scams. The caller might ask for personal information to send you a refund or threaten you with arrest or deportation if you don't pay an overdue tax bill. Report these impersonation scams online or call 1-800-366-4484.

Finally, any website that claims to be an official IRS site but does not begin with is bogus. Make a phishing report at the link cited above.

File early and hold your personal information close

File your tax return as early as possible. Income tax identity thieves strike early in the year.

Safeguard your social security number and never give it out unless you have initiated contact requiring its disclosure. Never routinely carry a social security card or documents that display your social security number.

Protect all personally identifiable information on your computer. Use firewalls, anti-spam and virus detection software, and use secure passwords for Internet accounts. Be especially discrete with your online activity in public places over non-secure networks.

If you become a victim

The signs

You are likely to have become a victim of tax fraud if the IRS informs you that:

  • they have received more than one tax return filed under your social security number
  • you owe the IRS money for a refund overpayment
  • you reported wages from an employer you never heard of

What to do

Don't procrastinate; work with the IRS. In addition to following the FTC-recommended steps to limit the damage of identity theft:

  • respond to the IRS notice right away using the telephone number and contact information on the notice
  • complete IRS Form 14039, the Identity Theft Affidavit. Go to and follow the instructions for transmitting the form to the IRS.
  • pay your taxes and file your tax return, even if you must use paper documents

It might take a while, and you could use some help

Tax identity fraud cases can become complex and perplexing. An IRS resolution to tax identity fraud could drag on for months. If you need help in extricating yourself from identity-theft problems, Dukhon Tax and Accounting offers just the expertise, advice and services to individuals and businesses on a year-round basis.