Understanding Tax Concerns when You Lose Your Spouse

The death of a spouse may be the greatest tragedy of your life, but sadly, it can happen. While you may not want to think about the possibility, doing so in advance can help you be prepared from a tax perspective. Here are some tips, whether you need them now or store them away for later.

File a joint return in the first year. Chances are when you were married you used the “married filing jointly” tax status. If your spouse passed away in the current year, you may still file a joint return for that year. This could provide you with the best tax rates and the largest standard deductions.

File a “qualifying widow or widower” return in the second and third years. You may file using a tax status called “qualifying widow or widower” for two years after your spouse passes away. This gives you the benefits of a joint filing. However, there is one caveat: you must have a child who is a dependent in order to file as a qualifying widow or widower.

File as “head of household” after the third year. Lastly, after those benefits expire, you may want to claim head of household status on your tax return. You can do so if you have a child who qualifies as a dependent. Tax rates are better than they are for single taxpayers (although they are less favorable than they are for “married filing jointly” and “qualifying widow or widower” returns).

This is a difficult topic. We cannot emphasize enough: the death of a spouse is a tragedy no one wants to contemplate. Certainly, it is not a time when you want to think about finances.

If you have any questions about how any of this works, please reach out. We’re just a call or email away.

Cleaning up Your Finances as Year-End Nears

As the end of the year nears, many of us give thought to getting our financial houses in order. Here are things to add to your to-do list.

Review your financial accounts: Look at your bank accounts, retirement accounts, credit cards and other financial accounts. Having too many is a common problem. Ask yourself: Do they still meet my needs? If not, should I consolidate some or close them? Should I open others? While you are doing this, also update your account information. Ensure that your other financial accounts have accurate contact and beneficiary information. If you have not changed your beneficiaries in some time, you may want to review them (and make all possible accounts transfer on death, or TOD, so they avoid probate in the event of your death).

Review your budget and debts. Do you have a budget? How does your spending align with your budget? If it is not on budget, determine why. Are you spending too much money on luxury items? Are you overwhelmed with debt? Develop a strategy for keeping your spending on track and eliminating debt (perhaps by consolidating loans).

Consider doing some estate planning. Lastly, estate planning is not just for the wealthy: everyone should have a will. If you do not have one, look into getting one. If you already have a will, year-end is a good time to review it to ensure it still protects your loved ones in the manner you intended.

Do you need help getting your financial house in order? Call us today for a year-end review.