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Individual Tax

Life Events That Can Affect Your Tax Return

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  Life has a way of changing faster than our paperwork — and that includes your taxes. Major milestones like marriage, having a child, buying a home, or even relocating can have significant effects on your tax situation. The good news is that with a little awareness, you can prepare ahead and avoid missing valuable tax opportunities.
Marriage is one of the most impactful life changes for your taxes. Once you tie the knot, you can choose to file jointly or separately. For most couples, filing jointly offers better tax brackets and access to credits like the Earned Income Tax Credit (EITC) and Child Tax Credit. However, in certain situations — for example, if one spouse has high medical expenses or significant student loans — filing separately may make sense.

Having a child opens the door to several tax benefits. You may qualify for the Child Tax Credit, Dependent Care Credit, and deductions for education savings contributions. Be sure to update your W-4 form with your employer so the correct amount of tax is withheld from your paycheck — too much, and you’re giving the IRS an interest-free loan; too little, and you risk a surprise bill in April.

Buying a home can also shift your tax picture. Homeowners may be able to deduct mortgage interest, property taxes, and even mortgage insurance premiums. Energy-efficient upgrades can qualify for tax credits, while certain home office expenses can be deducted if part of your home is used exclusively for business.

Relocating to a new state can change your income tax rate or filing requirements. States have varying rules on deductions and credits, so consult with your accountant to ensure compliance and optimize for your new location.

Even less obvious events — like starting a business, inheriting property, or retiring — can create new tax obligations or opportunities. Keeping your accountant informed whenever a major change occurs helps them adjust your strategy and ensure you’re making the most of available credits and deductions.

In short, life events can significantly alter your tax outcome, but they don’t have to catch you off guard. With timely updates, good recordkeeping, and proactive planning, you can make sure your tax situation evolves alongside your life — not after it.

How Inflation Continues to Impact Investment Strategies

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IBusiness people working on business contract papers at officenflation remains one of the most influential forces shaping investment strategies. Even when inflation appears to stabilize, its long-term effects continue to influence purchasing power, returns, and portfolio construction. For investors in 2026, understanding how inflation interacts with different asset classes is essential for protecting wealth and maintaining real growth over time.

Inflation reduces the real value of money, meaning that investments must earn more than the inflation rate just to preserve purchasing power. Traditional savings vehicles, while stable, may struggle to keep pace during prolonged inflationary periods. This has pushed many investors to reevaluate how their portfolios are structured and whether they are positioned to withstand rising costs.

Certain asset classes tend to respond differently to inflation. Equities, for example, can offer long-term growth potential, particularly when companies are able to pass higher costs on to consumers. Real assets, such as real estate or commodities, may also provide a hedge because their values and income streams can adjust with inflation. Fixed-income investments, however, can be more sensitive, as rising inflation often leads to higher interest rates, which can reduce bond values.

Inflation also affects investment time horizons. Short-term volatility may increase during inflationary periods, making it more important for investors to focus on long-term objectives rather than reacting to temporary market fluctuations. Adjustments may include reviewing asset allocation, rebalancing portfolios more frequently, or incorporating investments designed to provide inflation protection.

Tax considerations further complicate inflation planning. As nominal returns rise, investors may face higher tax liabilities even when real returns remain modest. Coordinating investment strategies with tax planning can help improve after-tax outcomes.

Inflation is not a short-term concern; it is an ongoing factor that requires continuous monitoring. Investors who acknowledge its impact and adapt their strategies accordingly are better positioned to preserve purchasing power and sustain growth in changing economic conditions.

Timing Income and Deductions for Better Tax Outcomes

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Sorenson & Company, CPA

Effective tax planning is not just about what you earn or spend, but when those transactions occur. Timing income and deductions strategically throughout the year can significantly impact your overall tax outcome. This approach becomes especially important for individuals and business owners with variable income or flexible payment schedules.

Income timing involves deciding when to recognize income for tax purposes. In some cases, deferring income into a future tax year may reduce tax liability, particularly if you expect to be in a lower tax bracket later. Conversely, accelerating income into the current year can be beneficial if tax rates are expected to rise or if current deductions are unusually high.

Deduction timing works in a similar way. Paying certain expenses before year-end can increase deductions in the current tax year, while postponing them may be more advantageous if income will be higher in the future. Strategic planning allows taxpayers to align deductions with higher-income periods, maximizing their impact.

Examples of timing strategies include:

  • Accelerating or delaying bonus payments, invoices, or project billing
  • Prepaying deductible expenses such as rent, insurance, or professional fees
  • Scheduling equipment purchases or capital improvements strategically
  • Managing retirement contributions to optimize deductions
  • Planning charitable contributions to align with higher-income years

For business owners, timing decisions can influence cash flow as well as taxes. For example, a business with a strong year-end may choose to purchase necessary equipment before December 31 to take advantage of deductions, while still preserving liquidity for the new year.

Timing strategies must always align with tax rules and accounting methods. Cash-basis taxpayers generally recognize income when received and deductions when paid, while accrual-basis taxpayers follow different rules. Understanding which method applies is critical before implementing any timing adjustments.

It is also important to consider how timing decisions interact with estimated tax payments and potential penalties. Deferring income without adjusting estimated payments may create underpayment issues if not planned carefully.

Tax timing is most effective when approached as a year-round process rather than a last-minute decision. Regular reviews throughout the year allow for adjustments based on changing income, expenses, and personal circumstances.

By thoughtfully managing when income is earned and deductions are taken, taxpayers can create more predictable outcomes and reduce unnecessary tax exposure. Strategic timing does not eliminate tax obligations, but it can significantly improve efficiency and financial clarity.

How Side Income Impacts Your Tax Return

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Side income can be a great way to reach financial goals faster, pay down debt, or explore a new passion — but it also changes your tax situation. Whether you’re freelancing, driving for a rideshare app, selling products online, or renting out a room, the IRS considers side earnings taxable income. Understanding how to report it properly helps you avoid penalties while maximizing deductions.

The first rule is simple: if you earn money, it’s taxable. Even if it’s a small amount or a one-time payment, it needs to be reported. Many side earners assume that if they don’t receive a 1099 form, they don’t need to report the income — but that’s not the case. The IRS requires you to report all income, regardless of whether it’s officially documented by a third party.

Freelancers and gig workers typically receive a Form 1099-NEC or 1099-K, depending on the platform or client. These forms report nonemployee compensation and payment app transactions, respectively. Keep in mind that starting in 2025, the 1099-K reporting threshold is $5,000, but you’re still responsible for reporting smaller amounts even if no form is issued.

With side income comes the responsibility of paying self-employment tax, which covers Social Security and Medicare contributions typically withheld by employers. Currently, the self-employment tax rate is 15.3%, though half of that amount can be deducted on your return. Setting aside a portion of each payment — typically 25–30% — helps cover both income and self-employment taxes.

The good news? Side work comes with plenty of potential deductions. You can often deduct business-related expenses such as internet costs, software subscriptions, mileage, and even a portion of your home office if you meet IRS guidelines. Keeping detailed records of these expenses throughout the year can significantly reduce your taxable income.

To stay compliant and organized, use separate bank accounts for your side business and personal finances. This simplifies bookkeeping and provides a clear audit trail. You may also need to make quarterly estimated tax payments to avoid underpayment penalties — something your accountant can help calculate based on your income pattern.

Even if your side income starts small, reporting it accurately builds good financial habits and establishes a clear record of earnings. That record can help you qualify for loans, plan for retirement, or even grow your side hustle into a full-fledged business later on.

In short, side income can be a great financial boost — but it comes with added tax responsibility. With a little planning and good documentation, you can enjoy the extra earnings without the year-end surprises.

What the IRS Is Focusing on in 2026

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Sorenson & Company, CPA - Sandy UTIRS enforcement priorities continue to evolve, and in 2026, the agency remains focused on accuracy, reporting transparency, and compliance consistency. While most businesses aim to follow the rules, certain patterns and errors tend to attract closer attention during reviews or audits.

One major area of focus is income reporting. Discrepancies between reported income and information returns such as 1099s or other third-party documentation often trigger questions. Businesses that receive income from multiple sources must ensure all revenue is accurately reported and properly categorized.

Another ongoing area of scrutiny involves deductions. While deductions are a legitimate and important part of tax planning, exaggerated or poorly documented expenses raise red flags. Businesses should ensure that deductions are reasonable, directly related to operations, and supported by clear records.

Common areas the IRS continues to monitor include:

  • Inconsistent income reporting across tax forms
  • Excessive business expense deductions relative to revenue
  • Improper classification of workers as contractors instead of employees
  • Payroll tax filing and payment errors
  • Home office deductions that do not meet usage requirements

Technology and data matching have also become more sophisticated. Automated systems allow the IRS to compare filings more efficiently, increasing the likelihood that inconsistencies are identified quickly. This makes accurate reporting and documentation more important than ever.

Good recordkeeping remains one of the strongest defenses against compliance issues. Businesses that maintain organized financial records, reconcile accounts regularly, and document key decisions are better prepared if questions arise. Addressing potential issues early can prevent small errors from becoming larger problems.

Understanding IRS focus areas helps businesses take a proactive approach to compliance. By reviewing filings carefully, maintaining accurate records, and seeking guidance when needed, businesses can reduce risk and operate with greater confidence in today’s regulatory environment.

Ready for a Move?

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Shot of a mature couple using a laptop while going through paperwork at homeItching for a change of scenery? Whether you plan to sell your home because of retirement, a job change, or a desire to downsize or move to a larger home, you may be eligible for a very attractive tax break.

If your home has appreciated in value, you may be able to exclude all or part of your profit from the sale of your home on your federal income tax return. Eligible individuals may exclude up to $250,000 of gain from their income, while married couples who file jointly may be able to exclude up to $500,000 of gain. Just be sure you familiarize yourself with the rules before you sell your home.

Who and What Qualifies?

Your home can be a house, a cooperative apartment, a condominium, or another type of residence. To qualify for the exclusion, you must have owned and used the home as your principal residence for at least two years (a total of 24 full months or 730 days) during the five-year period ending on the date of the sale. The tax law allows you to utilize the exclusion multiple times over your lifetime as long as you meet the applicable requirements. However, you may not use it more than once every two years.

You can have only one principal residence at a time. That means that if you own two homes, the home you use for the majority of the year would generally be considered your principal residence for that year.

In the case of the $500,000 exclusion for a married couple filing jointly, only one spouse must meet the ownership requirement, although neither spouse may have excluded gain from a previous home sale during the two-year period ending on the sale date. Both spouses must meet the residence (use) requirement in order to qualify for the $500,000 exclusion.

Ownership and Use Do Not Have to Be Continuous

Your ownership and use of the home do not necessarily have to coincide. As long as you have at least two years of ownership and two years of use during the five years before you sell your home, the ownership and use can occur at different times. For example, you can move out of the house for up to three years and still qualify for the exclusion.

A Reduced Exclusion Is Possible

If you are unable to meet the qualifications for the full $250,000/$500,000 exclusion, you may be eligible for a reduced exclusion under certain circumstances. These are:

  • You have to sell your home because of a change in place of employment;
  • You must move for health reasons; or
  • You must move because of other qualifying “unforeseen circumstances.”

The amount of the reduced exclusion is generally based on the portion of the two-year use and ownership periods you satisfy.

As you can see from this general summary, the rules for the gain exclusion can be complex. Your tax professional can provide more details regarding how to qualify for this valuable tax break.