TAX TIPS FOR THE SUMMER
School is starting back up soon, and summer vacations are winding down. Now might be a good time to look back on your summer and see if you can take advantage of any of your summertime activities.?Here are some common tax implications to consider when looking back on your summer.
Getting Married
A large number of people tend to prefer to get married over the summer than in other seasons. However, there are some tax consequences that newly married couples should be aware of. I posted a more in-depth article of this earlier so if you would like more information, please go check out my other article.?
In a nutshell, newly married couples need to make sure the update their name and address information with the appropriate federal agency to avoid any delays in receiving refunds when they go to file their taxes. They also need to reevaluate their finances to see how much they should withhold from their paychecks and fill out a new W-4 with their employers. Finally, newly married couples need to determine whether it would be better to file joint or separate on their tax returns.
Kids and Summer Camps
If you send your kids to a summer camp, you may qualify for the Child and Dependent Care Credit.?Essentially, this is a credit that is available for working parents. During any time of the year, if you send your child to day care so you can go to work, the cost of that day care is applied to a credit when you file your taxes.
This is the same rationale for summer camps. However, there is some nuance to this rule. It can’t be for overnight summer camps; it has to be a day camp where the child returns home at night. Also, summer school and summer tutoring sessions do not count even if they take place when you are at work.
But the type of summer camp does not generally matter. It could be a soccer camp, a space camp, or a language emersion camp for all it matters. The guidance from the IRS specifically states that camps that specialize in particular activities still count for the credit as long as they provide care while the parent is going to work.
Traveling for Business
There is a lot of travel over the summer. Unfortunately traveling for vacation is not deductible, but if you travel for business, you can. Even if you travel for business and decide to take in the sights, a portion of your travel business will still be deductible.
Mixed business and pleasure trips are a little tricky, but the general rule is that if you spent money for entertainment, it is not deductible. If you spent money to further the purpose of your business trip, then it is deductible. If you find yourself in this situation, you may want to talk to a tax professional to help you sort it out.
Something important to note is that extended business stays or temporary work assignment travel is deductible. The rule is that if you travel away from home and reasonably expect to stay there for less than a year, all of your travel, meals, or lodging expenses are deductible. Just don’t go too crazy with this.
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The expenses must be ordinary and necessary and connected to the business purpose to be deductible. You can’t deduct expenses that are lavish or extravagant, even if they are in some way connected to business travel purposes. Remember, pigs get fat, hogs get slaughtered.
Summer Jobs
Speaking of work, what about those summer jobs? Summer is a good time for some of us to make a little extra money.?For some, it might be the only time we make money.
Your tax implications for a summer job might be a little complicated. It depends on quite a few factors. Are you an employee, an independent contractor, or do you have a side gig of your own?
Depending on how much you make, you might not be required to file a tax return.?But even if you don’t have to file, you might want to if you would get a refund back. This one can get a little complicated and it might be worth it to ask a tax professional for advice.
Home Improvements
Summer is also the time the tools come out to play. Why not take advantage of the warm weather to make some improvements to your home? If this sounds like you, there are some tax advantages you should know about fixing up your home.
If you would like to make your home more energy efficient, there is a tax credit for that.?If you install exterior doors, exterior windows and skylights, or insulation and air sealing materials or systems on your home, you may be entitled to a tax credit when you file your next tax return.
Do you want to install clean energy in your home? ?There is credit for that too. If you install solar panels, solar water heaters, wind turbines, geothermal heat pumps, fuel cells, or battery storage technology you can claim 30% of the installation cost as a credit on your next tax return.
You may also be entitled to a deduction depending on how you pay for it. This might not be for everyone, but if you refinance your home or take out a second mortgage to pay for the improvements, you may be entitled to a Home Mortgage Interest Deduction.?
There is some nuance to this, but the general rule is that if you take out a mortgage on your home and use it to substantially improve your home, the interest you pay during the year is deductible on your tax return. There are some limitations though, so it may be a good idea to talk to a tax professional before going this route.?
Just remember, if you are about to make a big decision or just need some extra guidance, I always recommend contacting a tax professional to help you out. If you would like to talk to one of our tax attorneys, please visit our website to set up a consultation.