Solutions to Make Better Decisions with Your Taxes and Money

6 Tax Moves to Make Before the Summer’s Over

6 Tax Moves to Make Before the Summer’s Over - TaxACT Blog

Summertime – the days of sun-kissed skin, juicy slices of watermelon and flip-flops. The last thing you probably want to think about are your taxes. However, the summer months are actually the perfect time to do a mid-year checkup.

So, in-between firing up the grill, splashing in the pool and taking family vacations, set aside a few minutes to check these simple to-dos off your list and save yourself time and money come tax season.

Organize your finances

If you’re super organized, you’ve probably already marked and filed every receipt since January and carefully tracked your year-to-date income and expenses. You may even know exactly where your taxes currently stand.

However, for those of us who aren’t quite as organizationally inclined, we have some catching up to do. But rest assured, it’s not as difficult to get started as you may think. It’s as simple as doing a little sorting, throwing out things you don’t need, filing and updating any financial records.

Tackling several months’ worth of backlog expenses and receipts at this point in the year will be much easier than waiting until you have a full year’s worth later. Plus, you’re much more likely to remember details about expenses and other items now versus next year.

Review your income tax withholding

Whether you owed money or got a big refund on last year’s income tax return, now is the time to review and adjust your income tax withholding if you’d like a different result when you file next year.

Adjust your withholdings by completing Form W-4, Employee’s Withholding Allowance Certificate, and modifying your exemptions accordingly. Generally, in order to have less tax withheld from your paycheck, more exemptions are needed, but to have more tax withheld, you’ll want to mark fewer exemptions on the form.

To make it quick and easy, sign into your TaxAct account and click on the “Next Year” tab at the top of the page to access Form W-4. After answering a few questions, you can print your new Form W-4 and give it to your payroll department. Do not send it to the IRS.

Keep up with estimated taxes

If you own a business or have substantial income that isn’t subject to income tax withholding, you may need to pay quarterly estimated taxes.

If that’s the case, you’ll want to pay close attention to the due dates as estimated taxes for the third and fourth quarters of the year are due before the quarters are even over.  September 15 is the third quarter deadline, and January 15 is the due date for the fourth quarter.

While it may be hard to come up with the money for estimated taxes every quarter, it can be even harder to pay the entire amount as a lump sum at tax time. Plus, you’ll be held accountable for any applicable penalties and interest for late payments at that time too.

A good way to keep up with taxes on self-employment and other income is to funnel the necessary money into a separate bank account as it comes in or at least once a month.

Remember your summer child care tax benefits

Do you send any children under age 13 to daycare during the summer because you work away from home? If so, you may qualify for the Child and Dependent Care Credit.

Whether your child goes to daycare, day camp or has a sitter at someone’s home, you may be eligible for the credit to help offset some of those extra child care expenses. Additionally, parents who don’t work, but are attending school or looking for a job, may qualify for the credit.

However, keep in mind that in most cases, you cannot take the credit if you send your child to tutoring or to an overnight camp.

In order to take advantage of this credit, be sure to save applicable child care receipts. This credit can reduce your taxes up to 35 percent of the amount you spend, so it’s definitely one you don’t want to miss out on.

Have your kids work for your business

One advantage to owning a business is you can give your own kids a job. If there’s something they can do to help, you can pay them and deduct their wages.

As an added bonus, if your kids are under the age of 18, you don’t have to bother with Social Security and Medicare taxes.

Your kids will be subject to paying tax on their earnings, but they are almost certainly in a lower income tax bracket than you are.

In fact, if they’re just working a few hours in the summer, they probably won’t owe any tax on their earnings at all.

Make energy-efficient home improvements

Summer is a great time to be outside and to make your house more efficient for the colder days to come.

Check with your power company to see if it offers free energy audits. You might also do some research to learn about cost-effective ways to save energy this fall and winter.

If you buy certain energy efficient items such as solar hot water heaters, solar electric equipment and small wind turbines, you may qualify for a tax credit up to 30 percent of the total amount. And, that includes the cost of on-site preparation and installation at your home.

Track and file all applicable receipts so you’re ready to complete IRS Form 5695, Residential Energy Credits, to claim your credit come tax time.

TaxAct makes preparing and filing your taxes quick, easy and affordable so you get your maximum refund. It’s the best deal in tax. Start free now or sign into your TaxAct Account.
About Sally Herigstad

Sally Herigstad is a certified public accountant and personal finance columnist and author of Help! I Can't Pay My Bills, Surviving a Financial Crisis (St. Martin's Griffin). She writes regularly at CreditCards.com, Bankrate.com, Interest.com, RedPlum, and MSN Money. She is an experienced speaker and a member of Toastmasters International. Follow Sally on Twitter.

Comments

  1. Michael Davids says:

    What is the Federal Tax implication of big Lottery winning after the heavy state tax?
    Moreover what is the maximum amount of the winning can be given away to friends, relatives and charitable organization that will be tax free in their hands?

    • Hi Michael! Any amount of money you gift to friends, family or charitable organizations will always be tax free in their hands. The only thing to be concerned with is that the amount you give will go against your annual and lifetime gift tax exclusions. For TY 2017, the annual exclusion amount is $14,000. As long as you do not gift over this amount to one person or organization, you will not have to file a gift tax return. If you give more than that amount, you will need to submit a gift tax return to the IRS. Additionally, the amount will go toward your lifetime exclusion amount, which is $5.49 million per individual. Once you have given over this amount, you are subject to taxes. Thank you!

  2. Marcella says:

    I have 2 girls. One will be in her Sr. yr of college and the other is 15. I have often helped my oldest financially w rent etc.
    Is there a way I can get any of this back on taxes? Must I claim the oldest as a dependent? She is a full time student and works 2 jobs throughout the year even though they are parttime.
    I’m divorced. The father and I take turns w claiming our youngest. Even so, is there also a way I can deduct for items I paid for our youngest in relation to school, sports, etc? It seems to me itemizing only is for mileage and medical. I have never itemized either. Your help is appreciated.

    • You are not able to get any money back through your taxes for the money you spent to support your oldest daughter financially through rent, etc. In order to determine if you should claim your oldest daughter as a dependent, she will need to meet these qualifications to be considered a “qualifying child and dependent”:
      Relationship — she is your child or stepchild (whether by blood or adoption), foster child, sibling or step-sibling, or a descendant of one of these
      Residence — she has the same residence as you for more than half the tax year. Exceptions apply, in certain cases, for children of divorced or separated parents.
      Age — she must have be under the age of 19 at the end of the tax year or under the age of 24 if she is a full-time student for at least five months of the year, or be permanently and totally disabled at any time during the year
      Support — she did not provide more than one-half of his/her own financial support for the year
      Nationality — she must be a U.S. citizen or national, or a resident of the U.S., Canada or Mexico
      If you are going to claim her on your tax return, she cannot claim herself on a return or file a joint return with someone else. Additionally, you can only claim your children as dependents in the years their father does not.

  3. I would like to be able to move the money from my regular 401(k) into a Roth IRA and I believe the only way I can do so is by rolling it over to a regular IRA and then converting it into a Roth IRA. In so doing, I would be able control how much I convert each year in order to minimize my tax liability. Is this a viable solution or do you have another suggestion?

    • Good question! What you have described is a perfectly viable solution and is an effective way to manage your taxable income. It is indeed possible to convert a regular 401(k) directly into a Roth IRA if your 401(k) plan administrator allows it. But using the Traditional IRA as an intermediate step is a good idea particularly if your 401(k) plan is with a previous employer, as often there are additional fees that kick in for participants that are no longer with the company.

      As a reminder, you must be separated from your employer to move funds from your 401(k) into a either a Traditional or Roth IRA. You cannot do this if you are still working for the same company/employer, unless you are already older than 59 ½ years old.

  4. Betz Batchelor says:

    How do I find out what tax I’ll pay on an inheritance of $15,000???

  5. Maryjane Eldred says:

    How do I know if I need to adjust my withholding? I had to pay last year in a big way but it was for a specific reason that will not happen this year. Is there an estimated 6 month tax chart somewhere? Do I use last year’s chart?

    • The IRS has an online tool to help you figure out the correct amount of tax to withhold based on your situation. If you need to make a change, the tool will help you complete a new Form W-4. Click here to access the calculator.

  6. My son works and he’s 17 living with me. Do I put him on my taxes or does he file on his own?

    • You would be better off to put him on yours he can also file his own but note that he is being claimed by mom you’ll get a bigger credit if he’s not working much

    • If you provide more than half of your son’s financial support during the year you can claim him on your tax return as a dependent. However, if he had taxes taken out of his paycheck, he will still want to file a tax return in order to receive a refund. Keep in mind, if he files a return and you claim him as a dependent on your own return, he cannot claim himself as a dependent on his.

  7. Harvey Flamholtz says:

    Does a new, more efficient, central a/c unit bring any tax benefits?

    • If you install an energy-tax-credit-eligible heating and cooling system by Dec. 31, 2016 you could be eligible for an energy tax credit. Keep in mind, there is a lifetime credit max of 10 percent of costs, up to $500 for all energy improvements combined. Also, not all heating and cooling systems qualify for a tax credit. Check the Energy Star site for specific guidelines.

  8. Bobby Fulton says:

    I love these refresher notes that help you to remember the art of doing taxes and all of it’s complications. It would be very nice if we had more of them during the year.

  9. does a new energy efficient ac windows or insulation count
    foe credit

  10. David Knapp says:

    Do you have a two-state rate as there are many out-of-state commuters around lrge metropolitan areas that need to pay in their home state and their “work state. ” Your softward does an excellent job at coordinating the returns with each other and with the Federal return, but it waould nice to have a 2-state package available.

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