These summer season actions can have an effect on the tax scenario for the subsequent 12 months
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Oh, summer time. It’s the perfect time to think about taxes.
Some activities and activities that are more common this season may also affect your taxes, as the IRS recently discovered. And the sooner you assess how these efforts will be incorporated into your tax return next spring, the fewer surprises you will encounter.
Here are some of the situations that can have tax implications.
1. Rent a room or a house
If you’re one of the growing number of part-time landlords – those who rent out a room or their entire house for short stays – don’t forget that Uncle Sam may get a cut depending on how much you’re renting out.
“When you formally rent your home to someone else who pays you, you can generate taxable income that needs to be added to your Form 1040, as well as reporting wages, dividends, interest and gains on stock sales,” said Kathryn Hauer, one Certified Financial Informatics Planner at Wilson David Investment Advisors in Aiken, South Carolina.
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“If you were a happy landlord, those revenues could be substantial,” said Hauer.
To find out whether you have to report your income – regardless of whether the rental is your main residence or a holiday home – count the days in the calendar year in which you rented the space. If you rent for 14 days or less, the income is tax-free.
Otherwise, you need to be ready to report the income. However, you can also deduct (or partially deduct) certain expenses.
“You can reduce your tax burden by carefully monitoring your expenses,” said Hauer.
However, the rules can be complicated. So it can be worthwhile to consult a tax advisor, said Hauer.
2. Getting married
Summer tends to come with a higher proportion of weddings than at other times of the year. Most (73%) take place from May to October, according to TheKnot.com.
When you and your partner tie the knot this year, it is worth considering how it will affect your taxes. While most couples end up with a lower tax burden after walking down the aisle, there are areas of tax law that result in being paid more as a married couple than as a single taxpayer.
This so-called “marriage penalty” occurs when the tax limits, deductions and credits for a couple are not twice as high as for a single parent.
For example, the top tax rate of 37% is $ 523,601 for single filers. However, for married couples filing a joint declaration, this rate will apply to incomes above $ 628,300.
The Tax Policy Center has a marriage calculator that you can use to fill in details of your and your partner’s financial life – wages, business income, dependent children, etc. married couple.
3. Your children go to day camp
If your children go to camp during the day so that you can work, these expenses can be offset against the so-called child and child care tax. (This differs from the child tax credit.)
The child and care loan was expanded for 2021. You may be able to reimburse up to 50% of your childcare costs up to $ 8,000 for someone under the age of 13 ($ 16,000 in expenses for two or more dependents). In other words, one child could bring in a $ 4,000 loan while two or more children could bring in a $ 8,000 loan.
The loan begins to expire at an adjusted gross income of $ 125,000 and disappears completely at an income of $ 438,000.
4. Part-time / sideline employment
If you’ve taken on a part-time job over the summer, chances are you’ll get paid as a contractor rather than a regular employee, Hauer said.
Independent contractors generally receive a Form 1099-NEC (instead of a W-2) and taxes are not withheld from your wages. This means that you are considered self-employed, which in turn means that you will have to pay self-employment taxes (which cover required health and social security contributions) as well as income taxes.
“If the amount you’re making is substantial, you may have to make estimated tax payments,” Hauer said.
The good news is that as a self-employed person, you can deduct your work-related expenses from your income, which can lower your taxable income.