Decisions you make this summer may save you money when it’s time to file your 2016 tax return. See if you can qualify for any of the following deductions or tax credits, and pass on info to teens or those home from college for the summer:
1. Income for dependents
– Business owners may hire their children under age 18, providing income for their kids and keeping them busy in the summer. The wages paid are deductible from the business owner’s taxable income. Sole proprietors may hire their children and don’t have to pay Social Security or Medicare taxes on the wages. The wage amount paid must be reasonable based on the job task.
– Dependents may earn a total of up to $6,200 annually without owing taxes or needing to file a tax return. If this is the case, dependents may want to claim “exempt” on Form W-4(s). Employers must still withhold Social Security and Medicare taxes. And if an employer withholds money for federal income taxes, then a tax return is necessary to receive a refund.
– Babysitting, mowing lawns, newspaper delivery, and other odd jobs are generally considered self-employment. If your son or daughter is over age 18 and self-employment net income is $400 or more, then the IRS requires payment of self-employment taxes (the ‘other half’ of the Social Security and Medicare taxes that are typically paid by an employer).
– Summer jobs that receive tips as payment must be reported for all jobs that have $20 or more in tip income. Job examples include waiter/waitress or camp counselor.
2. Summer camp/child care
– Day camps, day care, and the transportation to get to the facility may qualify for the dependent and child care credit. To qualify, both [married] parents must need child care to work or look for work. Single parents qualify, but not stay-at-home moms or dads. If there is no earned income, and the parents don’t find a job, then the credit is invalid. The exception is if one spouse is a full-time student or disabled, you can still qualify for the credit. Parents must also provide the IRS with the camp or child care facility name, address and federal tax ID number to receive the credit.
– Overnight camps don’t count for the child care credit. However, medical expenses (such as physical exams, or shots) for all camps may be tax deductible. The rules are the same as for other medical expenses.
3. Home improvement/maintenance
– Installing energy efficient upgrades in your home in 2016 is worth up to 30% of the cost as a tax credit. You’ll also save money on energy bills every month. Qualifying upgrades include window or door replacements, AC unit upgrades, tankless water heaters, solar panels, insulation, and roofing.
– Storms or floods that damage your home may help you qualify as a casualty loss on your tax return if the value of your home declines due to the damage.
– Owners of a second home (or condo, boat, or motor home) may rent out the property for up to 15 days a year without paying income tax on the rent received. Expenses for upkeep of the property also qualify for a tax deduction.
– Trips to Las Vegas or other casinos may have an effect on taxes. You must report any gambling winnings. You can deduct losses if you lose as much or more than you win.
Have a great summer, and talk with your Salmon Sims Thomas tax advisor if you have questions.