Organize your finances
If you’re super organized, you’ve 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. The rest of us may have some catching up to do, but rest assured, it’s not difficult to get started. It’s as simple as doing a little sorting, throwing out things we don’t need, filing, and updating your financial records.
Tackling several months’ worth now will be much easier than waiting until you have a full year’s worth of records later. Plus, you’re much more likely to remember details about expenses and other items now versus next year.
Review your income tax withholding
Whether you owed a large tax bill or got a big refund on last year’s income tax return now is a good time to review and adjust your income tax withholding if you want a different result when you file next year. Generally, you need more exemptions to have less tax withheld, and fewer exemptions to have more tax withheld.
Keep up with estimated taxes
If you own a business or have substantial income that isn’t subject to income tax withholding, you may need to pay quarterly estimated taxes. The estimated taxes for the third and fourth quarters of the year are due before the quarters are even over – on September 15 for the third quarter, and January 15 for the fourth quarter.
As many self-employed can attest, it can be hard to come up with the money for estimated taxes every quarter. However, it can be even harder to pay the entire amount as a lump sum at tax time, plus any applicable penalties and interest. The best way to keep up with taxes on self-employment and other income is to put it in a designated bank account as the money comes in, or at least once a month.
Remember your summer child care tax benefits
If you work and send your child under age 13 to daycare this summer, you may qualify for the Child and Dependent Care Credit. Whether your child goes to an actual daycare, day camp or are babysat at someone’s home, you may be eligible for the credit. Just keep in mind that in most cases, you cannot take a credit if you send your child to tutoring or to a camp away from home.
Parents who don’t work but are attending school or looking for a job may also qualify for the credit. Be sure to save applicable child care receipts because the credit can reduce your taxes by up to 35 percent of the amount you spend.
Have your kids work for your business
One advantage to owning a business is that you can give your own kids a job. If there’s something they can do to help, you can pay them and deduct their wages. If your kids are under the age of 18, you don’t even have to bother with Social Security and Medicare taxes. Your kids are subject to paying tax 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 probably won’t owe any tax on their earnings.
Make energy-efficient home improvements
Summer is a great time to be outside and to make your house more efficient for the colder days to come. Check 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 such as solar hot water heaters, solar electric equipment, and small wind turbines to name a few, you may qualify for a tax credit.
The credit is 30 percent of the amount you spend, including the costs of on-site preparation and installation at your home in the United States. Track and file all applicable receipts now so you’re ready to complete IRS Form 5695 to claim your credit come tax time.
(From TaxAct website by sally herigstad)