Summer Fun Can Bring Tax Surprises
Summer is a time for vacations, weddings, kids' activities, and earning a little extra income. Most people aren't thinking about taxes while they're enjoying the season, but some common summertime activities can affect the tax return you'll file next year.
Here are several situations worth keeping in mind.
Summer Weddings Mean Tax Changes
Summer is one of the busiest wedding seasons.
Getting married doesn't automatically increase or decrease your taxes, but it does mean it's time to update several records.
Newlyweds should:
- Report any name change to the Social Security Administration.
- Update their address with the IRS, employer, and the Postal Service if they've moved.
- Review tax withholding at work.
- Decide whether Married Filing Jointly or Married Filing Separately will make the most sense at tax time.
Making these updates now can help prevent processing delays when it's time to file.
Summer Day Camp May Qualify for a Tax Credit
If you're paying for a summer day camp so you can work or look for work, part of the cost may qualify for the Child and Dependent Care Credit.
Many parents are surprised to learn that:
- Day camps may qualify.
- Overnight camps generally do not qualify.
Keep receipts and provider information in case you qualify for the credit.
A Summer Job Still Means Taxes
Students often assume they don't need to worry about taxes because they only worked during the summer.
Not necessarily.
Even if little or no federal income tax is ultimately owed, it may still be worthwhile to file a return in order to claim a refund of taxes that were withheld from paychecks.
Parents should also remember that a student's earnings can affect whether they remain a dependent in certain situations and may influence education-related tax benefits.
Side Hustles and Gig Work
Summer often brings opportunities to:
- Drive for Uber or Lyft
- Deliver food
- Sell crafts or collectibles online
- Mow lawns
- Pet sit
- Do freelance work
Unlike traditional employment, taxes usually are not withheld from gig income.
That means you may need to:
- Track all income.
- Keep records of business expenses.
- Consider making estimated tax payments.
- Report the income even if you never receive a tax form.
Many gig workers are surprised by self-employment tax when they file their return. Good recordkeeping throughout the year can make a big difference.
Mixing Business Travel with Vacation
Summer is also a popular time to combine business with vacation.
If a trip is primarily for business, many business-related travel expenses may be deductible. However, expenses related to sightseeing, family activities, or personal vacation days generally are not.
Good documentation is essential.
Keep records showing:
- Business purpose
- Dates
- Locations
- Meetings
- Receipts
Trying to deduct an entire family vacation as a business trip is a common mistake the IRS watches closely.
Selling Investments to Pay for Vacation
Some families sell stocks, mutual funds, cryptocurrency, or other investments to help fund a summer vacation.
Remember that selling appreciated investments can create taxable capital gains.
Likewise, selling digital assets may generate taxable transactions that need to be reported.
Before selling investments, it can be worthwhile to understand the tax consequences.
Home Improvements During the Summer
Summer is prime time for home improvement projects.
While most repairs aren't immediately deductible for a personal residence, certain qualifying energy-efficient improvements may qualify for federal tax credits, depending on current law.
Keeping detailed invoices and documentation can save time at tax preparation.
Renting Out Your Home
Summer festivals, sporting events, and vacations sometimes encourage homeowners to rent out their homes or a spare room.
In some situations, rental income must be reported.
However, there's also a little-known rule that may allow homeowners who rent their residence for 14 days or fewer during the year to exclude that rental income from federal income tax if the requirements are met.
This is an area where the details matter.
Don't Forget Good Records
Many tax benefits are lost simply because taxpayers don't keep adequate records.
Throughout the summer, consider saving:
- Receipts
- Mileage logs
- Travel records
- Camp invoices
- Business expense documentation
- Investment statements
A little organization now can make tax season much easier.
Final Thoughts
Summer should be about enjoying life, not worrying about taxes. But a few simple steps now can help you avoid unpleasant surprises next filing season.
Whether you're getting married, sending kids to camp, earning extra income, traveling for business, or making major purchases, understanding the tax rules ahead of time can save both money and stress.
The article is meant for informational purposes only. Please contact me directly to discuss how this applies to your individual tax situation.