Summer is almost here, and many of us are thinking about vacation trips and other ways to enjoy the season. But with April 15 just two months behind us (or 10 months into the future) what most of us probably aren’t thinking about is taxes. However, there are smart moves you can make now that will save you money next April.
1. Summer Camp Expenses Can Qualify for Tax Credits.
If you have kids and they go to summer camp, then you might be able to qualify for the Child Care Tax Credit. This credit offers between 20 percent and 35 percent of the cost of qualifying camps, up to $3,000 for a single child or $6,000 for two or more children.
In order for married couples to claim the credit, though, both spouses have to have earned income from work. In addition, the costs of overnight camps don’t qualify for the credit, although day camps from which you pick up your kids each day do qualify. You’ll want to talk to the group running the camp in order to get the documentation needed to claim the credit when you file your tax return next year.
2. Summer Jobs for Kids Often Qualify as Income-Tax Free.
Dependents don’t get the same deductions that non-dependents get, but their standard deduction can rise when they have earned income. Specifically, the dependent standard deduction is generally $1,000, but it rises to $350 above the total amount of earned income that the dependent receives during the year, all the way up to the non-dependent single limit of $6,100. Earn up to that amount, and your child won’t have to pay tax or file an income tax return.
One thing to keep in mind, though, is that common jobs like lawn care or babysitting are treated as self-employment. If you earn more than $400 during the year for that work, additional self-employment taxes are due even if you have no income tax liability.
3. Soak up the Sun for Solar Credits.
Basking in the sun might be your idea of the perfect way to do nothing, but if your house has solar panels, it can be hard at work saving you money on your electric bill. The IRS also does its part to make going solar more affordable, with a tax credit of 30 percent on what you pay to purchase qualifying solar energy systems. Other subsidies and tax breaks at the federal and state level can be available, so check locally to see what benefits you might qualify to receive.
4. Going on a Long Vacation? Rent Out Your Home Tax-Free.
If you own a vacation home that you rent out throughout the year, you’ll pay taxes on your rental income. But the IRS has a special rule that says that if you rent out residential property — whether it’s your primary residence or a second vacation home — for less than 15 days total, then you don’t have to treat the money you receive as rental income. Once you hit the 15-day mark, though, the special exception goes away.
5. You Can Get Tax Breaks From Home Damage.
When the sun stops shining in summer, rough weather can be on the horizon: Depending on where you live, it may be the season for tornadoes, hurricanes, or flooding. The casualty-loss provisions of the tax code allow you to deduct losses above $100 to the extent that they exceed 10 percent of your adjusted gross income. Keep in mind that the amount of your loss is limited to whatever isn’t covered by any insurance policy you might have on the property. Still, the tax break can at least cushion the blow of your deductible, or uninsured losses.
Be Tax-Smart This Summer!
Taxes might be the last thing on your mind right now, but keep these tips in mind and they could help you save on your tax bill next spring.