Tax Tips for Newly Widowed Individuals

Our tax situation changes as our life stages change, and losing a spouse is no exception. You may not want to consider taxes at such a difficult time, but when you’re ready, here are some tips that will help keep your tax bill to the legal minimum:

Joint returns: First, if your spouse passed away in the current year, you can still file a joint return for the year. This may provide you with the best tax rates and the largest standard deductions, assuming you do not itemize. Regardless of when during the year your spouse died, you may also claim a full exemption for him or her.

Dependent children: In addition, if you have a child living with you and that child qualifies as your dependent, for the first two years after your spouse’s death you may file as a so-called qualifying widow or widower – a filing status that provides you with the benefit of joint – return tax rates.

However, you will not receive an exemption for your late spouse. In the third year after your spouse’s death, if you have a child living with you and that child qualifies as your dependent, you can claim head-of-household status on your tax return. The advantage of doing so is that tax rates are better than they are for single taxpayers (although they are less favorable than they are for joint returns and qualifying widow and widower returns.)

Life insurance: Finally, remember that any proceeds you receive from a life insurance policy are tax-free (regardless of who paid the premiums); you should not report those proceeds as income.

You also may get breaks in other areas, such as individual retirement accounts and rental property inherited from a spouse. Your financial advisor can clarify.

Of course, these suggestions won’t compensate for the loss of your spouse, but they may make your life easier during this time.

Note: This material has been prepared for informational purposes only and is not intended to provide tax advice.

Now’s the Time to Spring Clean Your Financial House

As spring arrives, many of us look forward to spring cleaning our homes – dusting the corners, organizing cabinets, and airing it out in preparation for a new season. But spring is also a good time to get your financial house in order.

That means you may want to meet your advisor for an annual financial review. Here are some areas to examine during your meeting:

Your accounts: Look at your bank and retirement accounts, credit card balances, and investments. Do they still meet your needs? Discuss your finances with your advisor to decide whether you should consolidate, close, or open.

Updated account information: Ensure that all your financial accounts are up to date. Is the contact information still accurate and is the status of your beneficiaries current? If you haven’t checked your beneficiaries’ information in some time, you may want to review it. Some distant relations may have moved or changed their names.

Your budget and debts: Is your spending on budget? If not, determine why. Are you spending too much money on luxury items? Are you overwhelmed with debt? Work with your advisor on a strategy to keep spending on track and eliminate debt.

Estate planning: Estate planning isn’t just for the wealthy; everyone should have a will. If you don’t, get one. If you have one, ensure it still protects your family as you intended. For example, did you know that by making as many of your financial accounts as possible “transfer on death” you can help your beneficiaries avoid probate? Your lawyer can provide details.