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
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.