These summer activities can impact next year’s tax situation

These summer activities can impact next year’s tax situation

Summer. It’s the perfect time to think about taxes.

Some activities and pursuits that are more common during this season also may be things that impact your taxes, the IRS noted recently. And the sooner you evaluate how these endeavors will figure into your tax return next spring, the fewer surprises you’ll face.

Here are some of the situations that may have tax implications.

  1. Renting out a room or a house
    If you’re among the growing ranks of part-time landlords — those who rent out a room or their whole house for short stays — don’t forget Uncle Sam might be due a cut, depending on how much renting out you do.

When you formally rent your space to another person who pays you, you may generate taxable income that must be added to your Form 1040, just as you report wages, dividends, interest and stock sale profits.
If you’ve been a lucky landlord, that income could be sizable.

To figure out whether you need to report the income — regardless of whether the rental involves your primary home or a vacation home — count up the days in the calendar year that you rented out the space. If you rent for 14 days or less, the income is tax-free.

Otherwise, you’ll need to be prepared to report the income. However, you also get to deduct (or partially deduct) certain expenses.

You can mitigate your tax burden by keeping careful track of expenses.The rules can be complicated, however. So it may be worth consulting with a tax advisor.

  1. Getting married
    Summer tends to come with a higher share of weddings than other times in the year. Most (73%) take place from May through October.If you and your partner tie the knot this year, be sure to consider how it will impact your taxes. While most couples end up with a lower tax bill after heading down the aisle, there are areas of the tax code that result in paying more as a married couple than as a single tax filer.

This so-called “marriage penalty” kicks in when a couple’s tax-bracket thresholds, deductions and credits are not double the amount allowed for single filers. For instance, the top federal income tax rate of 37% kicks in at $523,601 for single filers. Yet for married couples filing a joint return, that rate is applied to income above $628,300. The Tax Policy Center has a marriage calculator that lets you plug in details of your and your partner’s financial life — wage income, business income, children you claim as dependents, etc. — to see how your taxes would shape up when you file as a married couple.

  1. Your kids go to day camp
    If your children head to camp during the days so you’re able to work, it’s possible that those expenses can count toward the so-called child and dependent care tax credit. (This is different from the child tax credit.)

For 2021, the child and dependent care credit has been expanded. You may be able to get back up to 50% of your childcare costs of up to $8,000 for someone under age 13 ($16,000 expenses for two or more dependents). In other words, one child could mean a credit of $4,000, while two or more children could yield a credit of $8,000.

The credit starts phasing out at $125,000 in adjusted gross income and disappears entirely at income of $438,000.

  1. Part-time work/side hustle
    If you’ve picked up a side summer job, there’s a chance you’re being paid as a contractor rather than a regular employee.

Independent contractors generally receive a Form 1099-NEC (instead of a W-2), and taxes are not withheld from your pay. This means you’re considered self-employed, which in turn means you’ll need to pay self-employment taxes (which covers required contributions to Medicare and Social Security), as well as income taxes.

If the amount you earn is substantial, you may need to make estimated tax payments. The good news is that as a self-employed person, you can deduct your job-related expenses from your earnings, which can lower your taxable income.

Source: MSN Money