Summertime activities can affect your taxes. From sending kids to camp to getting a part-time job to taking the family along on a business trip, follow these tax-prep tips to stay out of trouble with Uncle Sam and maybe even get a tax break or two.
Sending Kids To Camp?
The cost of nearly everything has gone up. One way to take some of the sting out of paying for summer day camp for your children is to use the Child and Dependent Care Credit, says Don Grant, a certified financial planner in Wichita, Kan.
In many cases, day camps are considered child care, but overnight camps are not.
Qualifying families can claim as much as 35% of qualifying expenses up to $3,000 for one child or $6,000 for two or more children.
"Both parents must be working or actively seeking employment, and children must be younger than age 13," Grant told IBD. "Payments to be deducted must be made directly to the day camp provider."
However, supplies used for day camps don not qualify as write-offs. So be sure to keep detailed records.
"Parents will need to pay the full cost of the camp," Grant said. "The credit will be applied when they file their tax returns."
Nevertheless, even if your kid doesn't go to camp, other child care services can qualify. Regular day care centers, nannies and qualified in-house caregivers also qualify.
Additionally, parents who were or are still full-time students may also claim the credit. And while income level isn't a factor, you'll get a smaller credit if you earn more.
Check the IRS pamphlet on the Child and Dependent Care Credit for more details.
Getting Married? Love And Taxes Go Hand In Hand
Newlyweds should report name changes to the Social Security Administration. Don't forget to also report an address change to the United States Postal Service, employers and the IRS. This will help ensure you receive tax documents on time.
Grant suggests meeting with a tax advisor to iron out the finer details of tax prep as a married couple. For example, should you file married filing jointly or married filing separate?
"In most cases, 'married filing jointly' can be the most beneficial to the newlywed's bottom line," he said. "There are several deductions and credits that you may be eligible for as a couple, but not as an individual."
Some perks to look for? The Earned Income Tax Credit, the American Opportunity Credit and the Lifetime Learning Credit for education expenses.
Note: Couples filing separately cannot take a student loan interest deduction, Grant added.
Working Part Time?
While summertime and part-time workers may not earn enough to owe federal income tax, they should still file a return. If you or your teen got a part-time job this summer, file early next year to get a refund for taxes withheld from your checks this year.
Expect to get a W-2 form, which shows how much you earned, as well as withholdings for state and federal taxes, Social Security, Medicare wages and tips.
If you worked as an Uber or Lyft driver this summer, for example, visit the Gig Economy Tax Center to learn more about how participating in the sharing economy affects your taxes.
Summertime workers can avoid higher tax bills and lost benefits if they know their correct status. Depending on the job, employers will determine whether the people who work for them are employees or independent contractors.
Independent contractors aren't subject to withholding, making them responsible for paying their own income taxes plus Social Security and Medicare taxes.
Whatever you do, it's never too early to start thinking about retirement.
"Unless you're born with a silver spoon in your mouth, I suggest that everyone at any age who works contributes to a tax-advantaged retirement account," Grant said.
What's more, Grant suggests hiring your kids if you have your own business. "There may be several tasks that you don't like doing — let the kids learn and earn," he says.
With earned income, they'll be eligible to open and fund a Roth IRA. A Roth IRA is an Individual Retirement Account to which you contribute after-tax dollars. So while there are no current-year tax benefits, your contributions and earnings can grow tax-free.
"Investing money for retirement at a young age can give them a tremendous head start with their financial lives," Grant says. "They will thank you later!"
Cleaning Out The Attic? Get Your Taxes In Order Too
Long-unused items in good condition can be donated and may qualify for a tax deduction. Taxpayers must itemize deductions to deduct charitable contributions and prove of all donations. Use the Interactive Tax Assistant to help determine whether you can deduct your charitable contributions.
Since most of the items you sold at your yard sale probably brought in less than what they cost to buy them, you get a tax break. But if your monthly booth at the local flea market sold several antique paintings and vintage furniture pieces, you might have to report profits and losses, and pay self-employment taxes.
Volunteering?
Maybe you have more free time in the summer since you're not driving the kids to school. Or you're a teach on summer break or another type of seasonal worker. Driving a personal vehicle while donating services on a trip sponsored by a qualified charity could qualify for a tax break.
Don't forget to deduct mileage for your donated time. Just last month, the IRS boosted this tax credit to account for the surge in gas prices.
Taxes: Buying A New Home?
Lots of folks move in the summer, especially families with children who don't want to disrupt their children's school year. If you're buying a house, keep in mind that you can only deduct mortgage interest you pay on a total of $750,000, or $375,000 if married filing separately, in qualifying debt for a first and second home.
Also, if you have moved for your job, some of these expenses may be tax deductible. If you've moved over 50 miles to accommodate a new job and you continue to work in that area for at least 39 weeks during the year after the move, some of the costs of moving can be deducted on your tax return. Make sure to keep receipts of all your moving costs for your tax records.
Alternately, if you have a summer home, you can rent it out for up to 15 days a year without paying taxes on the rental income, and you can also deduct the qualified expenses (i.e. mortgage interest & real estate taxes).
Summertime is also the perfect time to update the energy efficiency of your house.
Many municipalities and the IRS allow tax deductions for certain energy-efficient upgrades like solar panels or other efficient heating and cooling systems, Grant says.
Keep close track of those upgrades and make sure to include them in IRS Form 5696, Residential Energy Credits, to claim the tax credits, he says.
Taking Your Family Along On A Business Trip?
Plenty of families combine work and vacation trips in the summer. You may be able to deduct the portions of your trip related to business.
For example, your airline ticket may be deductible, but tickets for your family members would not count as deductions.
"There is nothing wrong with bringing the family along on a business trip, but keep clear records on which expenses are yours, and those of the spouse and kids," Grant advises. "Keeping track of business expenses is much easier if you use a dedicated business credit card for your expenses, and a personal card for the family."
So what's a reasonable and necessary business expense? Any fares for trains, planes and ground transportation, Grant says. Also all car rental expenses, baggage fees, lodging, meals and gratuities.
But if you stay extra days to sightsee and relax with the family, those may not be included as business expenses, he adds.
Also, if you make a pit stop at the casino, taxpayers who itemize can deduct gambling losses up to the amount of gambling winnings.
Use the Interactive Tax Assistant to find out more about reporting gambling winnings and losses next year.
Follow Adelia Cellini Linecker on Twitter @IBD_Adelia.
