Updated for tax year 2024.
Summertime — the days of sun-kissed skin, juicy slices of watermelon, flip-flops, and … taxes?
Taxes are probably the last thing on your mind this summer, but hear us out! The summer months are actually the perfect time for a mid-year financial checkup to assess your tax situation.
So, in between firing up the grill, splashing in the pool, and taking family vacations, set aside a few minutes to consider these top summer tax moves to make and save yourself some money come tax season.
1. Organize your finances.
If you’re one of those super-organized taxpayers, 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 clerically 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, and filing and updating any financial records.
Tackling half a year’s backlog of expenses and receipts at this point in the year will be much easier than waiting until tax time or scrambling to get organized. Plus, you’re much more likely to remember essential details now versus waiting until tax filing or even the end of the year.
2. Review your income tax withholding.
Whether you owed a tax bill or got a big tax refund on last year’s federal 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.
You can adjust your withholdings by completing Form W-4, Employee’s Withholding Allowance Certificate.
To make it quick and easy, you can use the TaxAct® Refund Booster (W-4 Calculator)1. After answering a few questions about your income and accounting for any potential tax-free contributions to an HSA, IRA, or similar, we will fill out a new Form W-4 for you, which you can print and give to your payroll department.
3. Keep up with estimated taxes.
If you own a business, are part of the gig economy, or have substantial income that isn’t subject to income tax withholding, you may need to pay quarterly estimated taxes. You’ll want to pay close attention to the due dates, as they are not perfectly spaced throughout the year.
While it may be hard to come up with the money for estimated tax payments 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.
4. Remember your summer childcare 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. This is different than the Child Tax Credit.
If your child attends daycare, summer camp (day camps only), or receives care at someone’s home, you may be eligible for a tax credit to help offset some childcare costs. Parents who are not working but are attending school or searching for employment may also qualify for this credit.
In most cases, you cannot take this tax credit to offset the costs of tutoring or an overnight camp. To take advantage of this credit, be sure to save any applicable childcare receipts.
5. Hire your kids.
One advantage of owning a business is that you can likely employ your children as long as you follow any applicable labor laws. If there’s something they can do to help, you can pay them and deduct their wages. As a bonus, if your kids are under 18, you don’t have to bother with Social Security and Medicare taxes.
Your kids will be subject to paying taxes 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 may not have any tax liability at all.
6. Make energy-efficient home improvements.
Summer is a great time to make home improvements — some of which can score you a nice tax break! There are some energy-efficient tax credits available to homeowners who make sustainable updates to their homes.
Try checking 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 that can produce electricity or regulate your home’s temperature, such as solar, wind, or geothermal heat pumps, you may qualify for a tax credit of up to 30% of the total amount. This even includes the cost of on-site preparation and installation at your home. You may also be able to claim a credit for other home improvements, like replacing your exterior doors or windows.
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® can help you claim energy-efficient tax credits if you e-file with us.