9 Warm Weather Ways to Lower Your Tax Liability

It is quite unbelievable that August is just around the corner, and as the triple digit heat is keeping many indoors, there are a few things you could do to both make your summer more enjoyable, and lower your tax liability. Making tax savvy decisions throughout the year can ensure a lower tax liability come April.

1. Upgrade your Air Conditioning

If you have an old air conditioning system, and looking to upgrade, not only will a new, energy efficient model reduce your electric bill but it can also lead to a federal tax credit. The American Recovery and Reinvestment Act of 2009 created a $1,500 tax credit for energy efficient home upgrades, and if you purchase a qualifying model it could result in significant tax savings.

2. Enroll in a Local College Class

Looking for a way to spend some of your free time on the weeknights or weekend? Consider enrolling in a local college class. Not only will you be able to pick up new skills that could help improve your career, but you can take a tax deduction for tuition and other mandatory school fees. This is called the Tuition and Fees Deduction, and is reported directly on Form 1040 or Form 1040A.

3. Dual Pane Windows

Single pane windows were common among houses built a few decades ago. If your home still has single pane windows, I highly recommend upgrading to dual pane. They will increase the value of your home, lower your energy bill, and can qualify for the $1,500 energy tax credit.

4. Install Solar Panels

Next time you are outside and feel the heat of the sun beaming down on you, consider installing solar panels on your rooftop. They may be expensive, but you can claim a tax credit for up to 30% of the price of the upgrade on your next tax return. To learn more about solar tax credits, check out this link at EnergyStar.gov.

5. Volunteer with your Children

If you have children that are out of school on summer break, consider taking them to volunteer at a local charity such as a soup kitchen or meals on wheels group. Although there is no deduction available for volunteering your time, all expenses related to the effort are deductible such as supplies donated, or miles driven while volunteering.

6. Send your Kids to Day Care

Parents of children under the age of 13 can quality for a tax credit if you need to send them to a day camp during summer break. The costs associated with enrolling your children in day care can count towards the Child and Dependent Care Credit.

7. Start a College Savings Account

Although most students have the summer off, the new school year is going to begin in just a few weeks. As your children get older, you might want to think of opening a 529 college savings account. There are two different types of 529 plans, but they both have significant tax benefits.

8. Throw a Summer Office Party

If you run a small business, then throwing a summer office party is a great way to show your employees how much you appreciate their hard work. Additionally, the cost of supplies such as food and beverages are fully deductible business expenses.

9. Buy an Energy Efficient Vehicle

As I explained in this blog entry from a few weeks ago, there are still plenty of vehicles that qualify for a federal tax credit. During the summer months plenty of dealerships offer incentives for buying a car, meaning you can get a great deal on a new vehicle and a valuable tax credit.

Mid-Year Tax Planning: The Perfect Summertime Activity

The year is now half over and although most Americans wait until next April to think about taxes, I highly recommend tax planning throughout the year. The summer is a great time to review your finances since you will still have six months to make any changes to your withholdings, or take action to lower your tax liability.

Mid-Year Tax Projection

Since the year is half way finished, you can easily estimate what your total income for the year will be. Unless you anticipate a new job or are self-employed and unsure of your earnings for the rest of the year, you can simply add up your wages from January through June and double it. Using the 2010 income tax brackets you can then calculate your total federal tax rate. Look to see what you have already paid in federal taxes, and if your total taxes paid is less than half of your yearly tax liability then you might want to consider adjusting your withholdings or making an estimated tax payment.

Review your Withholdings

If you are underpaying on your federal taxes, you might want to adjust your withholdings. For wage earning employees, you can simply ask your employer for a new IRS Form W4. Either change your allowances or have an additional dollar amount withheld from your paychecks. If you have been overpaying the IRS, you might want to change your withholdings to have less taken out of your paychecks. Although you might not get as large of a refund in April, you will have more money in your wallet each month!

Estimated Tax Payments

If you are self-employed or have decent capital gains throughout the year, it is especially smart to calculate your 2010 tax liability. The IRS will asses a penalty if you underpay your taxes, so it might be a good idea to make an estimated tax payment. The most recent quarterly tax payment due date was June 15^th, but you can always make a late payment. The next payment is due Sept. 15. To learn more about estimated tax payments check out this entry on the Roni Deutch Tax Center – Tax Help Blog.

Organize your Files

When you have a few hours free, it might be a good idea to look over your financial records and tax related documents. Make sure you have documentation for any tax deductions or credits you plan to claim: all of your pay stubs, and receipts for any business or travel expenses you intend to write off. If you are missing any receipts you should try looking for documentation via your credit card or bank statements. This will be easier to do now, instead of six months from now when you might not exactly remember what day it was you took that client out to lunch or where you went.

Retirement Accounts

Depending on your unique financial situation you might want to consider opening a retirement account this summer. If you have a little extra money after your summer vacation why not use it to setup an IRA or 401(k). Some retirement plans – such as traditional IRAs – have significant tax implications and can lower your total tax liability.

Give to Charity

Another great way to lower your tax liability is to make charitable contributions. You could donate your winter clothing, as you will not need it in the hot summer weather, or any other household items you no longer need. Additionally, as the BP oil leak continues to spew oil into the Gulf you could make a monetary donation to a group working on the cleanup such as the National Wildlife Foundation.

Hire this Summer and Get a Tax Break

If you are an employer, you don’t want to overlook the HIRE Act tax benefits. If you are looking to hire some new employees, college students are a great idea for a summer position. This is exactly what Congress is trying to encourage people to do, hire an employee who hasn’t worked more than 40 hours in the last 60 days before getting hired, and you may qualify for a temporary tax break. Passed in March, the Hiring Incentives to Restore Employment (HIRE) Act would allow an employer with any qualified hire after February 3rd to skip paying the 6.2% Social Security taxes on the worker’s wages from March 19 through the rest of the year. This would save an employer nearly $2500 on $40,000 of pay.

A qualified hire would be someone who is unemployed this year (after February 3, 2010 and before Jan 1, 2011) and has not worked over 40 hours in the last 60 days.

The law is most useful to large corporations where they can use the HIRE provisions to save millions of dollars, but the law is also useful to small businesses. For example, these tax breaks work for businesses this summer who want to hire kids on summer break to help with paperwork or businesses that want to hire college students who haven’t worked elsewhere in the last 60 days and therefore, would be considered a “qualified employee.”

Tax Advice for Students Working a Summer Job

The school year is nearing an end for student all across the country and whether it is summer school or an entry level career job, millions of new employees will begin to enter the work force. If you are a working student yourself, or a parent of a child looking to get their first summer job, you might be concerned about the tax implications of being an employee. I have put together the following list of tax tips—let’s call it taxes 101 for wage earners—specifically for students working a summer job.

You will Need to Complete a W-4 Form

Whenever you start a new job you required to complete an IRS Form W-4, which essentially tells your employer the amount of tax to withhold from your paycheck. If you are not sure about what filing status you should claim or the number of exemptions to take, check out the withholding calculator on IRS.gov. At the start of a new job, you will also need to provide a government issued form of identification such as a driver’s license and proof of your social security number.

Tips and Odd Jobs are Taxable Income

If you work as a waiter, or any other position where you receive tips, you will need to report this money on your tax return. According to the IRS, all income from tips is subject to the federal income tax. Additionally, earnings from odd jobs such as house sitting, baby sitting, or mowing your neighbor’s lawn, are also subject to federal taxes.

Wages Paid Under the Table

Some employers will offer to pay students’ wages under the table – meaning they will not report the income to the IRS or withhold any taxes. However, it is your legal responsibility to claim this income on your federal tax return, regardless of whether or not the employer sends you a W-2 Form.

$400 or More Rule

If you earn $400 or more from any form of self-employment then you will have to pay self-employment tax on the income. This tax goes to Social Security and Medicare, which are usually taxes that are withheld from a wage earners paycheck. You will need to include your income, and calculate your self-employment tax on Schedule SE of your next IRS Form 1040.

Special Tax Laws for Newspaper Deliverers

There are a handful of special rules that apply to newspaper carriers or distributors. Technically, the IRS will treat you like a self-employed taxpayer as long as you meet the following conditions:

• You are in the business of distributing newspapers
• The pay you receive is related to your sales as opposed to the number of hours worked
• The distribution services are performed under a written agreement stating that you are not to be treated as a wage-earning employee in regards to federal taxes.

On a related note, children under the age of 18 working in the newspaper delivery business are not usually subject to the federal self-employment tax.

Summertime, When The Livin' Is Pricey

Summer is on its way, and so are costly summer activities. As MP Dunleavey of MSN Money points out, although summer seems harmless with its lazy afternoons and warm weather, costly summer activities can cause serious financial troubles for many American taxpayers. Check out a few of Dunleavey’s tips for summer budgeting below.

The catalogs are coming

I know. You want to believe that summer doesn't pose any financial risks. You want to sit on your patio and drink a cold one and pretend you're not going to read the Boden and Brookstone catalogs.

Well, take those rose-tinted sunglasses off and look at the dangers:

• Wedding season.
• Graduation season.
• Long weekends where you go somewhere or guests come to you -- either way, it's expensive.
• Home improvement season (my husband is painting as I type).

Continue reading at MSN Money…

Summertime Tax Tips Available on IRS.gov and Via E-Mail

In a their newest press release, the IRS announced that they would once again be giving out free summertime tax tips. This year the tips come with a useful spin though. Not only will the tips be given out 3 at a time once a week throughout the summer, but also taxpayers can now register to have the tips sent directly to their email as they are published. See the release, below.

The Internal Revenue Service is publishing summertime tax tips to provide useful and concise advice on topics that affect taxpayers.

Many people don’t think about their taxes until the start of the filing season in January. That can be a mistake. Steps such as checking your withholding, getting the proper receipts from charities, organizing all the records you will need or setting a personal tax strategy that can save money at tax time are most effective if they are done well before year’s end.

The IRS is publishing three tax tips per week this summer. Topics range from how parents can get credit for sending their kids to day camp to protecting yourself from identity theft.

Now you can receive IRS Tax Tips via e-mail as soon as they are published by signing up through the IRS e-news subscription page, e-News Subscriptions. When subscribing, a confirmation message will be sent via e-mail. Verification must be sent in response in order to confirm a subscription.

For more summertime tax and financial advice, check out these two older entries from my blog: 20 Ways to Save Money this Summer and Top 10 Summertime Tax Tips.

20 Ways to Save Money this Summer

The summer season brings vacations, birthdays, graduations, and parties, which all cost extra money. However, there are several ways you can save this summer to survive this recession. To help my readers looking to save this summer so they can still enjoy the sunny weather, I have collected the following 20 easy tips to save money.

1. Adjust your Withholdings

The average taxpayer overpays the IRS by over $2,000 per year. It can make for a nice refund come tax season, but by adjusting your withholdings you can get more money each month. This can be especially helpful during the summer season.

2. Make a Summer Budget

Most people plan their summers in advance, so why not take it one step further and plan your entire summer budget as well? Then, try to stick to it as much as you can. You’ll be surprised how much you can save when you plan out a budget in advance.

3. Plan Vacations in Advance

Planning vacations well in advance will allow for you to get the best deals on hotels, air fair, and even tickets to attractions like Disneyland or Sea World. Check out websites like Travelocity.com and Expedia.com to search for early bird specials and bundle packages.

4. Always Ask for a Discount

If you plan to do any traveling this summer with your family, then you should get in the habit of always asking for a discount. Hotels, theme parks, museums, and car rental agencies always run unadvertised sales and specials. By simply inquiring about a discount you could save hundreds of dollars this summer.

5. Investigate Gas Prices

When traveling, a few miles can make a big difference in gas prices. There are a lot of sites – such as GasBuddy.com – that can help you plan your fuel stops on a road trip, so that you can be sure to get the best gas prices possible.

6. Plan Meals

In addition to planning gas stops in advance you could also decide where you are going to stop for meals. You could even try making easy meals in advance that you can eat at a park or rest stop.

7. Vacation with Friends

Vacationing with friends or family members means you can split gas prices, hotel rooms, and entertainment expenses. Which could cut the cost of your vacation in half instantly.

8. Coupon Clipping

Summer savings are infectious, and with the recent economy, there are even more deals out there to take advantage of. You can try clipping coupons from your local newspaper, or purchase a coupon book from a local non-profit group. It may seem silly, but you would be surprised how much money you can save by clipping coupons.

9. Hyper Mile

"Hyper-miling" is the newest gas-saving craze, which involves altering your driving behavior to extend your mileage. CNN.com recently posted an article on the topic that you can check out by clicking here.

10. Cook Outside

Using your oven and stove can heat up your house, and result in excess air conditioning expenses. By cooking more food on the BBQ you can drastically reduce your energy costs, and with energy rates going up this summer any reduction will help.

11. Programmable Thermostats

If you do not have a programmable thermostat for your A/C then you might want to get one. You can use it to schedule your A/C to come on just a few minutes before you get home. That way your house will still be comfortable when you arrive, but you will not have to pay to keep the A/X running all day.

12. Full Laundry Loads

When doing laundry, you should always find a full load to wash. It uses the same amount of water, and can reduce the total amount of loads you will need to wash.

13. Fill in Drafts

Needing to caulk and seal a few drafty areas around the house? Do not hesitate because of the costs… the energy you are loosing through those drafts will cost you more than a container of caulking.

14. Make Expensive Purchases Online

We all have friends of family members with summer birthdays, and if you are buying a pricey gift then you should try to buy it online. You can usually search out pretty good deals, just make sure to make your purchase early enough to account for shipping.

15. Party at Home

Purchasing pricey beverages and snacks that are sold at bars and clubs can add up very quickly. Entertaining at home more often can save you hundreds of dollars throughout the summer.

16. Family Shared Plans

If every one in your family has a cell phone, but they are on separate accounts, then you could be wasting hundreds of dollars per year. Ask your phone provider if they have family plans, and how hard it would be to switch.

17. Pack a Lunch

Estimates show that bringing your own lunch to work even a few times a week can save up to $100 per month. If you do not like cold sandwiches, then you could try bringing leftovers from the previous night’s dinner.

18. Turn the Lights Off

Whenever you have the A/C on you should always have your lights turned off. Most light bulbs emit heat, and on a sunny day you can let light in through the windows.

19. Donate and Deduct

Donating some unwanted winter clothes? Do not forget all clothes donations are deductible on your next tax return. It will not save you any money right now, but it will next April.

20. Unplug on Vacation

If you are going to be away from home for a while for vacation, then you should always unplug major electrical appliances such as computers and televisions. Even when they are off, they still use some electricity, so by unplugging them you can reduce your energy bill.

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