Summer is a time for relaxation, adventure, and making memories. While it's a season to enjoy, it's also a great opportunity to stay mindful of activities that could impact your tax returns. Here are five summertime activities that can have tax implications and tips on how to navigate them for a smoother filing season next year.
1. Marriage
Impact on Taxes: Getting married changes your filing status, which can affect your tax bracket, deductions, and credits. As newlyweds, you’ll need to decide whether to file jointly or separately.
Tips:
Update Your Information: Notify the Social Security Administration of any name changes to ensure your tax returns match their records.
Adjust Withholding: Use the IRS withholding calculator to adjust your W-4 form and ensure the correct amount is withheld from your paycheck.
Tax Benefits: Explore potential tax benefits such as higher income thresholds for IRA contributions and increased deductions and credits.
2. Summer Camp
Impact on Taxes: If you have children attending summer camp, you may qualify for the Child and Dependent Care Credit. This can help offset the cost of camp, provided it allows you (and your spouse, if filing jointly) to work or look for work.
Tips:
Eligible Expenses: Ensure the camp is a qualifying expense by checking that it offers day care or activities while you are at work.
Keep Records: Save receipts and records of payments to claim the credit during tax season.
Limits: Be aware of the credit limits and income thresholds to maximize your benefit.
3. Business Travel
Impact on Taxes: Summer business trips can lead to deductible expenses, but it’s crucial to differentiate between business and personal travel.
Tips:
Document Expenses: Keep detailed records of business-related expenses, including transportation, lodging, and meals.
Mixed Travel: If combining business with personal travel, only expenses directly related to the business portion are deductible.
Per Diem Rates: Use the IRS per diem rates for meals and incidental expenses to simplify your record-keeping.
4. Part-Time Work
Impact on Taxes: Taking on a part-time job during the summer can affect your overall income and tax liability. Whether it’s a temporary position or freelance work, it’s essential to understand the tax implications.
Tips:
Report Income: All earnings, including cash payments, must be reported as income.
Estimated Taxes: If you’re an independent contractor or freelancer, consider making estimated tax payments to avoid penalties.
Deductions: Keep track of work-related expenses that may be deductible, such as supplies, mileage, and home office costs.
5. Home Improvements
Impact on Taxes: Home improvements made during the summer can increase the value of your home and potentially affect your tax situation.
Tips:
Energy Credits: Look into energy-efficient improvements, which may qualify for tax credits.
Record Keeping: Save receipts and documentation for any major home improvements to adjust your home's basis and reduce capital gains when you sell.
Loan Interest: If you take out a loan for home improvements, the interest may be deductible if the loan meets certain criteria.
Why Planning Really Matters
While summer is a season for enjoyment, it's also an excellent time to consider the tax implications of your activities. Being proactive and keeping accurate records can help ensure a smoother tax filing process next year.
Consult with your financial advisor and tax professional to maximize your benefits and minimize any potential liabilities. With a bit of planning, you can make the most of your summer fun without any unwelcome surprises come tax season.
World Investment Advisors, LLC does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
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