How Did You Spend Your Summer, Tax-wise?

We’ve talked before (July) about checking withholding rates from paychecks because of changes made by last year’s Tax Cuts and Jobs Act. They take effect for 2018. A check-up still a good idea, even if it only affects the final four months of the year. The Internal Revenue Service figures more than 7 out of 10 taxpayers had too much money withheld from their pay in 2016.

The IRS provides this calculator online as a quick way to figure whether you need a change: https://www.irs.gov/individuals/irs-withholding-calculator.

Here are some IRS guidelines. Check withholding if you:

  • Have a double-income family (on the same return)
  • Work two or more jobs at the same time or work only part of the year.
  • Claim credits, such as the child tax credit.
  • Have dependents who are 17 or older
  • Itemized deductions on your 2017 return.
  • Typically file a complex tax return or one with high income
  • Received a large tax refund or paid a big tax bill for 2017.

If you do need to change your withholding rate, find the new Form W-4 for withholding at https://www.irs.gov/pub/irs-pdf/fw4.pdf

Now, how about those summer jobs? Well, some summer workers might avoid taxes altogether because they didn’t generate enough income to report. However, their employers often had to withhold Social Security and Medicare taxes. So, take a look at the pay stub for your personal situation.

Also, be sure whether you were hired as an independent contractor or a payroll employee. Independent contractors must pay those Social Security/Medicare taxes and income taxes themselves. They typically will do that on their 2018 tax returns.

Parents, did you send your children to day camps this summer?  Those costs count toward the Child and Dependent Care tax credit. The children must be younger than age 13.  Note that expenses for overnight camps do not qualify.

Did you volunteer during the summer? You can’t get a tax break for your time, but you can deduct 14 cents for each mile driven in your personal car while doing service with a recognized charity.  Here’s a catch, though You’ll have to itemize mileage for all charitable deductions, and the new tax law affected the thresholds for itemizing expenses.

By the way, even workers with too little income for a tax return should file one, if an employer withheld income taxes. They’ll often be able to get a refund.

For deeper details on taxes from summertime activities, feel free to phone Eric Buechler, of EricJohn Ltd.

 

 

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