Summer is a time for fun and relaxation, but don’t forget about your taxes! Neglecting to file your taxes can lead to serious trouble with the IRS. To help you stay on track, we’ve put together some summer tax tips. Read our article below to plan ahead and enjoy the warm weather worry-free!
Why Focus on Tax Planning in Summer?
Spending some time in the summer on tax planning is a brilliant idea. You can carefully assess your tax obligations to prevent future penalties and to identify deductions and credits you might otherwise miss. One of our most crucial summer tax tips, early planning, allows you to develop tax-saving strategies effectively, ensuring a smoother, less stressful tax season and potentially saving money.
It’s also important to remember that many summer activities can impact your taxes. For example, if you plan to take on some summer jobs, the money you earn is taxable. If you’re renting out your home for the summer, this, too, must be included in your tax filing.
Additionally, if you decide to make home improvements this summer, you may be eligible for tax credits, especially if you add energy-efficient upgrades. Consulting with a tax attorney is always a good idea to fully understand your tax obligations and ensure compliance with ever-changing tax regulations.
1. Maximize Deductions on Summer Activities
Summer Camp Expenses
If you’re a working parent or actively looking for work and need to send your child to a summer camp or arrange for childcare, these expenses may be eligible for deductions under the child and dependent care credit.
To qualify, your dependents must be under 13 years old or any age if they’re incapable of self-care and live with you for more than half the year. You must also provide information about the childcare provider (sitter or daycare), such as their name, address, and identification number (e.g., Social Security Number). For summer camps, it’s important to note that only day camps qualify for this credit, not overnight camps.
Depending on your income, these deductions can cover up to 35 percent of your qualifying expenses.
Charitable Contributions
To deduct charitable contributions, such as those made at summer charity events, you need to itemize your deductions on IRS’s Schedule A (form 1040). You can only deduct the portion of your contribution that exceeds the fair market value of any goods or services received, such as entertainment or meals. Note that gifts to individuals don’t qualify for deductions; only contributions to qualified organizations are eligible.
For more detailed information about charitable contributions, refer to the IRS’s page “Can I deduct my charitable contributions?”
When reporting your charitable contributions on your tax filing, ensure you keep all necessary documentation. This includes receipts from the charity, bank statements, credit card statements, and other records of expenses. This meticulous process requires diligent documentation and attention to detail. Consulting with a tax professional or attorney can guide you through each step, making the process easier and ensuring compliance with tax regulations.
2. Plan For Big Purchases
Timing Large Investments
If you’re planning to make a large purchase, the best time to do so is towards the end of the year. Why? Because making purchases in the last quarter, especially in December, allows you to take advantage of tax deductions or credits for that tax year. This timing can reduce your taxable income and lower your overall tax liability. Additionally, depending on your state, some provide tax holidays where sales tax is waived on certain items. Timing your purchase during these tax holidays can lead to significant savings.
Applying tax-smart purchasing strategies from our summer tax tips can help you save even more. For instance, home improvements can be deductible if they include energy-efficient upgrades. Purchasing business-related equipment and supplies before the end of the year can be advantageous under Section 179, which allows you to deduct the cost of certain property as expenses. If you qualify for a home office deduction, items like computers, printers, desks, and chairs can be deducted as business expenses if used exclusively for work. These strategies not only maximize your tax benefits but also ensure you’re making the most out of your purchases.
3. Adjust Your Withholdings
Adjusting your withholdings can help avoid a large tax bill or maximize a refund. Reviewing your withholdings ensures that the right amount of taxes is deducted from your paycheck. Use the IRS’s withholding estimator to help you calculate the right amount to withhold. It’s advisable to review your withholdings at least once a year or whenever you experience significant financial changes. To avoid penalties, ensure that enough tax is withheld to cover your liability—it’s better to withhold slightly more than to face a large bill later.
The W-4 form, or Employee’s Withholding Certificate, lets your employer know how much income tax to withhold from your paycheck. To adjust your W-4, obtain a new form from your employer or from the IRS website. Fill out your personal information, and if you have multiple jobs or a working spouse, use the IRS worksheet or online calculator to account for the combined income.
If you have qualifying dependents, you can claim them on your W-4 form to reduce your withholding amount. Also, use the additional adjustments section if you have other income, itemized deductions, or need to withhold extra amounts. Once you’ve completed the form, submit it to your employer.
4. Keep Good Records
During the summer, it’s easy to overlook details related to your taxes amidst the flurry of activities. Missing important tax details can lead to penalties for incorrect filing and accrued interest on unpaid taxes. Keeping detailed records early helps you stay organized and ensures that you don’t miss any deductions or credits, ultimately preventing potential problems down the line.
One of the most important summer tax tips is engaging in good record-keeping habits to manage your finances effectively. Start by organizing all your records and documentation into folders and categorize them appropriately, making sure to separate personal and business finances. This helps avoid confusion and ensures clarity. Secondly, digitize your documents by scanning and saving them to secure cloud storage services, providing easy access and added security. Thirdly, regularly update your records to prevent backlogs, making the process less overwhelming. And lastly, establish a routine, whether weekly or monthly, to keep your records up to date. This consistent approach will make finding information and maintaining an organized system easier.
5. Preparing for Upcoming Tax Changes
Our last summer tax tips involve staying up to date with tax regulations. We know tax laws often change due to policy shifts and economic situations, so staying informed is crucial to ensure accurate tax filings and compliance with current regulations. These changes can significantly impact your tax planning. Imagine being ready to file your taxes only to discover new laws that require you to make significant adjustments. By staying updated on tax law changes, you can plan and manage your taxes effectively, avoiding miscalculations and potential problems.
To stay current, regularly check the IRS website for the latest news and announcements. Follow reputable financial news outlets that cover tax issues. Additionally, consider consulting with a professional tax attorney who is always on top of tax changes so you don’t have to worry about missing out on essential changes. Moreover, they can ensure your tax filings comply with the latest regulations, making the process smoother and more accurate.
End Note
As you can see, planning your tax filing can be quite an ordeal. With complex tax regulations and numerous requirements, it can be time-consuming and overwhelming. That’s why it’s essential to have everything set and ready before you dive into your summer plans, ensuring you can enjoy the season worry-free.
Our summer tax tips can help you get started! For an even smoother process, consider seeking professional help from experts like our team at Greenberg Law Group P.A. Let us handle your tax filing, giving you more time to enjoy your summer. With summer just around the corner, contact us today, and let’s get started!
