Although your taxes and finances may be the furthest thing from your mind during the summer, it’s good to know how certain things you do this summer may affect them. Here are a few financial tips to help you make the most of your summer.
1 | Hire your child.
If you own a business, hiring your child for the summer may make good tax sense. That’s because the amount you pay your child is deductible as a business expense. Plus, it’s not subject to Social Security and Medicare taxes if your child is under age 18 and your business is a sole proprietorship or a partnership where the child’s parents are the only partners.
2 | Consider helping your teen set up and fund an IRA.
If your child earns taxable compensation from working this summer, you can help them get a head start on saving for retirement by helping them set up and fund an IRA. The maximum amount your child can contribute for 2024 is $7,000 or their taxable compensation for 2024, whichever is less. If your child hasn’t reached the age of majority, you can set up and manage a custodial IRA for them until they do.
3 | Claim a tax credit for day camp expenses.
You may be able to claim a federal tax credit for part of the cost of day camp if your child is under age 13 and attends the camp so that you (and your spouse if you file a joint tax return) can work or look for work. The credit is called the Child and Dependent Care Credit and may be used for other childcare expenses also.
4 | Keep your home improvement receipts.
If you will be making improvements to your home this summer, be sure to keep the receipts. They may help you avoid taxes when you sell your home. Amounts you spend on certain home improvements, such as a kitchen remodel or an addition, increase your home’s basis, which may help you minimize or avoid tax on the increase in your home’s value when you sell it.
5 | Claim a tax credit for adding a clean energy system.
Planning to add a solar, geothermal, wind, or fuel cell system to your home this summer? You may be able to claim a federal tax credit for 30% of what you spend on the qualifying equipment and the labor to install it. Additional limits may apply. The equipment must meet specific energy requirements.
6 | Claim a tax credit for making your home energy efficient.
The Energy Efficient Home Improvement Credit has the potential to put some cash back in your pocket for installing qualified energy-efficient equipment and materials in your existing home. So if a new central air conditioner, water heater, furnace, windows, or similar items are in your future, you may want to check out this credit first for the details.
7 | Earn tax-free income by renting out your home.
As long as your residence is rented for 14 days or less per year, you can pocket the rental income without having to pay tax on it. If it’s rented for more than 14 days, the rental income is taxable, but you may be able to help offset it by deducting your rental expenses.
8 | Notify SSA if you change your name.
If you get married this summer and take your spouse’s last name, be sure to let the Social Security Administration (SSA) know before you file your next federal tax return. The name on your return should match the name on file with the SSA. If they don’t match, there may be a delay in processing your tax return.
9 | Review your tax withholding if you get married.
Getting married can change your tax situation and result in too much or too little federal income tax being withheld from your paycheck. The tax withholding estimator on the IRS website can help you estimate how much tax you may want your employer to withhold from your paycheck now that you are married.
10 | Self-employed? Extend a business trip into a vacation.
If you will be traveling for business this summer, consider extending your stay for a few days of fun. As long as the trip is primarily for business, you can generally deduct your business-related travel expenses, including the cost of getting to and from your business destination. Additional rules and limits may apply.
For additional questions, please consult with your trusted TBC Advisor.
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