Taxes usually aren’t on your mind in the summertime. You’ve already filed your 2011 return or obtained an extension and do not have to do so until October. However, there are some actions you may take this summer that can impact your taxes when you file next year. Here are some opportunities to consider, as well as some problems to be aware of:
Summer camp for your child
If you send a child under age 13 to day camp so that you can work, the cost may entitle you to claim a dependent care credit. The credit is based on expenses of up to $3,000 for one child, or $6,000 for two or more children. The credit percentage depends on your adjusted gross income, which you won’t know until the year is over.
The credit also applies to a child of any age who is incapacitated because of a physical or mental condition. Thus, if you send a child who is 15 and suffering from autism to day camp, the costs qualify for the credit.
Caution: The credit cannot be claimed for the cost of sleepaway camp, even though you work.
If you own a home that you rent out during the summer months, you may be able to write off certain costs related to the rental activity to offset the rental income you receive. In addition to the usual homeowner deductions of mortgage interest and property taxes, you may also be able to deduct maintenance costs, advertising, depreciation, insurance, and more.
If you rent out your home for no more than 14 days per year, you do not have to report any rental income, regardless of amount. However, you cannot deduct expenses other than those allowed to homeowners for their personal residences (mortgage interest and property taxes).
Caution: The rules for deducting costs related to rental property are very confusing because they vary, depending on your personal use of the property and on other factors.
If you spend your vacation working for a charitable organization, such as Habitat for Humanity, you may be able to deduct your out-of-pocket costs.
Caution: If your out-of-pocket costs are $250 or more, be sure to obtain a written acknowledgment from the charity regarding your activities. Even if you retain receipts, you cannot deduct your expenses without this acknowledgment.
Hiring your child for the summer
Jobs are hard to come by, so if you own a business and put your teenager on the payroll, your family can reap some benefits:
Caution: Keep track of the hours worked and the tasked performed in case the IRS questions your return. The IRS often scrutinizes deductions related to family situations.
For the fifth straight year, there has been in increase in the number of returns reporting alternative minimum tax (AMT) liabilityView all factoids