Preparing for future...taxes

[terces]

The way its looking we are definitely going to be empty-nesters before the end of this year. We knew eldest would be flying the coop as he's graduating from college in a few months. Youngest is a bit premature as he has changed his plans of going to college and is planning to enlist.

So I'm trying to prepare in advance how this is going to affect are income taxes and ways we can help diminish the impact. Definitely looking at maxing out 401Ks and IRAs but they don't have a huge impact as some of that comes under Roth allocations. Would appreciate any ideas, suggestions, or advice as we move into this new phase of life...a bit prematurely than planned.

[lorraineb]

I'm not sure I understand the question. Are you saying that you will no longer be able to deduct the two off your taxes as dependents so your tax burden will increase?

[terces]

Sorry if my question wasn't clear. Yes come 2015 I won't be able to claim them as dependents when I do my taxes. So wondering if there are other things I should be looking into to reduce my taxable income.

[MonkeyMama]

There really isn't anything you can do. Except if you are concerned about saving taxes up front, don't do the ROTH allocations.

Your taxes might go up a couple of thousand dollars, but I presume you will save more than that with two kids out of the house. Overall, those empty nest years tend to be the highest savings years for savers with children.

[Retired To Win]

Boy, I cannot think of anything substantial, either. Well, not trying to be intentionally funny, but if you rented out their rooms you probably would come out ahead in spite of losing the dependent tax benefits. You could also look into making an office out of one of their rooms (assuming you are in or can legitimately start an IRS-acceptable side business) because then you could take business deductions on the space.

[terces]

Thanks for all your replies. I guess I just need to accept that as life shifts, so does the money. While we will be paying more in taxes, we will be paying a lot less in other things. Such as food... two boys eat a lot of food.

[autoxer]

You could realize some capital losses, buy tax exempt municipal bonds, increase your itemized deductions or even work less to reduce your income.