Summer is a season when most of us plan on doing something fruitful with our time, be it pursuing a summer internship, multiple jobs, buying a new home or sending kids to summer day camps. The exciting part is that there exist many tax credits which you can add to your summer fun and which can give you some incredible tax breaks.
The thought of filing tax returns on time gives jitters to most of the U.S. taxpayers. But there are ways to reduce your tax liabilities by making the most of the tax exemptions and credits that you might not be aware of.
The following article will take you through such pointers which can help you claim a good amount of tax exemption and keep the most of your hard-earned dollars to yourself.
Did you know that you can claim Child and Development Credit?
It’s a prevalent practice to send our children to summer day camps in their holidays. But unlike many overnight camps, the summer day camp is considered as an expense towards Child and Development Care credit. So, any amount expensed towards a summer day camp will be eligible for a tax credit and can be availed by you on your tax returns.
Are you planning to pursue a part-time or summer work?
If you are planning on pursuing a full-time or part-time summer job, then you need to plan ahead on your taxes. Employers usually withhold Social Security and Medicare expenses from their employee’s paycheck as a mandatory tax withholding. A point to be noted here is that this tax withholding would still be deducted from your salary even if your income does not match the federal income tax filing threshold. If you are self-employed, then you would need to file your own Social Security and Medicare taxes even if you don’t have any income tax liabilities.
In general course, you would receive the Form W-2 from your employer or ex-employer to account for all the work done by you in the summer by 31st January of the upcoming year. This form will reflect the total of your earnings, withholdings for Federal and State Taxes, Social Security, Medicare wages and tips received by you. The information reflected in this form will help you fill out your income tax returns without any fuzz.
Married recently? Keep these tips in mind.
If you got hitched recently or are planning to, then you would be required to communicate any change in your name to the Social Security Administration and any change in address to the United States Postal Services, your employer and the IRS before filing next year’s tax returns. Doing so would help you receive your tax-related items without any hassle.
Classify your workers as employees or independent contractors
If you are a business owner, then you need to distinguish your workers as employees or independent contractors. This is important because the latter category is not subject to tax withholdings. Hence, independent contractors would need to pay their Social Security and Medicare taxes themselves. Doing so would help you deduct the right amount of withholding from your summer worker’s salary and would also help the independent contractors take smart and conscious tax decisions, and avoid paying higher tax bills.
Tax tips for itemizing deductions in the next tax year
1. State and local income, sales and property taxes: The total deduction that you can deduct for state and local income, sales and property taxes from your next tax year’s return is $10,000, in case you are married and filing a joint return. It’s $ 5,000 if you are married and filing your returns separately.
2. Buying a home: If you had purchased a home after 15th December 2017 or planning to buy one now, then you can only deduct the mortgage interest you pay on a total of $ 7,50,000 or $ 3,75,000, if married and filing separately, in qualifying debt for a first and second home. If you have an existing mortgage, then you can deduct interest on an amount of $ 1 Million in qualifying debt secured for a first and second home.
3. Donated items: Donated items in qualified charity are eligible for a tax deduction. You may itemize deduction to deduct items given by you as a charity with proper documentation and proof. You may use the Interactive Tax Assistant to find out if your donation qualifies for a charitable deduction.
4. The time utilized in donating: If you have made a charitable donation this year or are planning to in the summer, then the expenses incurred for driving a personal car towards making such charity qualifies for a tax break and can be deducted while filing for your tax returns.
5. You can now deduct gambling losses: If you are a taxpayer and you itemize, then you can deduct your gambling losses up to the amount of gambling winnings. You can use the Interactive Tax Assistant to know all about reporting gambling winnings and losses next year.
Ensure to file your tax return even in case you don’t meet the federal tax threshold
Those of you who have been or are planning to do a summer job should ensure to file a tax return even in case your earnings don’t meet the federal income tax threshold. If you haven’t filed your returns yet, then go on and do so because there is no penalty for filing a tax return late in case of refunds, but still the threshold, in this case, becomes three years. So, make it a point to file your returns to claim income tax refunds within three years.
Check your withholdings
For all the summer workers, newlyweds and people planning to do a part-time job this summer, make it a point to check the amount of your tax withholdings to ensure the right amount of tax is being withheld from your income.
You can use the Withholding Calculator on the IRS website to check the right amount of withholding deductible from your earnings. This feature will help you estimate your income tax, credits, adjustments, and deductions and will help you find if you need to adjust your withholdings by submitting the Form W-4. You may also submit this form with your employer and not the IRS directly if required.
Filing tax returns can make you claim refunds on your withholdings and make you eligible for many other tax credits and deductions. So, make the most of these tax tips and make your summer shine even more brightly this tax season.
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