Summertime Activities That Can Yield Tax Savings

Summer activities can bring more than a change of pace. They may also affect your tax situation. Whether you're getting married, sending the kids to camp, traveling for business, or taking on other seasonal activities, these events may create tax considerations and planning opportunities worth reviewing now. Here are some key summertime activities and tax tips to keep in mind.

Marriage: Streamlining Your Tax Filing

Summer is almost synonymous with wedding season, and with marriage come important financial considerations. For newlyweds, taking a few proactive steps now can help make your tax filing process smoother when the time comes:

• Name Change: If you’ve changed your name, it’s essential to report this to the Social Security Administration (SSA) to ensure your tax returns are processed without issues.
• Address Change: Be sure to notify the United States Postal Service, your employers, and the IRS of any address changes. To officially update your address with the IRS, complete and submit Form 8822, Change of Address. You’ll find detailed instructions on page 2 of the form.

Addressing these changes early can avoid potential delays or complications during tax season.

Summer Camp: Take Advantage of the Child and Dependent Care Credit

Many parents send their children to summer camp each year, but certain costs may be eligible for the Child and Dependent Care Credit. This credit can help lower your tax liability when qualifying care expenses allow you, and your spouse if filing jointly, to work or look for work.

To qualify, the camp must generally be a day camp, not an overnight camp, and the child must be under age 13 when the care is provided. The credit may also be available for care expenses related to a spouse or other dependent who is physically or mentally incapable of self-care and lives with the taxpayer for more than half of the year.

Taxpayers claiming the credit should maintain the care provider’s information and complete Form 2441 with their tax return. Depending on income, the credit can cover up to 50% of qualifying expenses, subject to applicable expense limits and other eligibility requirements.

Business Travel: Deductions and Compliance

While kids may be enjoying their summer break, business often continues as usual for many parents. If you’re traveling for work, it’s important to remember that certain expenses related to business travel are tax-deductible. These can include airfare, lodging, meals, car rentals, and even expenses for business-related phone calls or internet usage. Whether your business trip lasts a few nights or spans the entire summer, keeping detailed records and understanding the tax rules related to these deductions is crucial for maximizing your tax benefits.

Part-Time Work and the Gig Economy: Filing for Refunds

While summer may be a time for some to have a lighter workload, many individuals take on part-time jobs or side gigs to supplement their income. Whether you or your teen is freelancing, driving for a ride-sharing service, delivering food, or working in seasonal retail, it’s important to be aware of the tax implications. Even if earnings are below the threshold to owe federal income tax, filing a tax return may still be beneficial to claim any refunds you may be entitled to.

When the time comes for filing, make sure to report all income earned, whether it’s from gig work or part-time jobs. This may include income reported on Form 1099-NEC for freelance work, Form 1099-K for payments received through apps, or Form W-2 for traditional employment. Additionally, keep track of any deductible expenses related to gig work, such as mileage or equipment costs, as these may reduce taxable income and potentially increase a refund.

Taxpayers who earn qualified tips or qualified overtime may also be eligible for additional deductions, even if they do not itemize. Qualified tips may be deductible up to applicable limits, while qualified overtime compensation may also qualify for a separate deduction, depending on filing status and income. These amounts generally need to be reported on the appropriate tax forms, such as Form W-2, Form 1099-NEC, Form 1099-MISC, Form 1099-K, or other required reporting, depending on the type of income.

Summer School: Consider Education Tax Credits

If you or your college student plans to take summer school classes, you may be eligible for a tax credit for a portion of qualified tuition, required fees, and course materials.

The American Opportunity Tax Credit applies to the first four years of post-secondary education for students pursuing a degree or other recognized credential. The student must be enrolled at least half-time during the year at an eligible educational institution. Up to $4,000 of qualified expenses may be considered for the credit, with a maximum annual credit of $2,500 per eligible student.

The Lifetime Learning Credit is available for all years of post-secondary education and may apply to one or more courses. Unlike the American Opportunity Tax Credit, the courses do not need to lead to a degree or recognized credential. Eligible courses may include those taken to acquire or improve job skills. The credit equals 20% of up to $10,000 in qualified expenses, with a maximum annual credit of $2,000 per tax return.

Taxpayers cannot claim both the American Opportunity Tax Credit and the Lifetime Learning Credit for the same student in the same tax year. Eligibility may also depend on income limits and other requirements, so taxpayers should review their options before filing.

Make the Most of Summer Tax Planning

By understanding the tax implications of your summer activities, you can make informed decisions that positively impact your financial situation. If you have any questions or need personalized assistance, contact your CRI advisor today. Our team is here to help you maximize your tax benefits and minimize your liabilities, no matter the season.