4 tax moves to make this August
Monday, August 01, 2022
Summer's winding down, with schools opening their doors across much of the country in just a few weeks. So of course, you're thinking of one last getaway to escape the sweltering dog days.
But before you head out to a beach retreat or cooler mountain cabin, take a few minutes for taxes.
August is a good time to make some tax moves that could save you some dollars and future headaches. Here are four to consider.
1. Make your tax holiday shopping list: The return this fall of students to classrooms is most welcome by COVID-weary parents who saw much more of their kiddos than they planned during the pandemic. But literally going back to school also means the students need more.
The good news for the students and their parents is that 15 states are holding back-to-school sales tax holidays in August. Friday, Aug. 5, is the start day for nine of them; they're in Illinois, Iowa, Missouri, New Mexico, Ohio, Oklahoma, South Carolina, Texas, and Virginia.
The other six no- or reduced-tax events are a bit later this month in Arkansas, Connecticut, Maryland, Massachusetts, New Jersey, and West Virginia. And Florida's tax breaks on back-to-school items, which started late last month, run through Sunday, Aug. 7.
Before you head out to the shopping center or mall, check out these 6 shopping tips to maximize sales tax holiday savings
2. Gather your kids' camp receipts: Before school takes up most of your youngsters' days, you're still responsible for taking care of them this final summer month. Maybe you found a great day camp to keep your kiddo occupied, earlier this summer and into August. If so, be sure you keep all the receipts. Day camp expenses can count toward the child and dependent care credit.
Note, however, that the care credit is not as generous as it was for the 2021 tax year. Under the American Rescue Plan Act (ARPA), the tax break was enhanced. The amount of eligible expenses you could use to figure the credit were increased last tax year, to $8,000 for the care of one child and $16,000 for two or more youngsters.
That and other enhancements ended on Dec. 31, meaning for the 2022 tax year the expense cap returned to $3,000 spent on care of one child and up to $6,000 for the care costs two or more kids counts. Still, even the lower amounts could help you claim this credit, which is a dollar-for-dollar reduction of any tax you owe.
3. Get part-time work documents in order: If you're children are older, they likely were part of a time-honored rite of passage — getting a summer job. This short-term work offers good lessons on responsibility and money management. It also could have tax implications, five of which are discussed in my post on tax considerations for young workers and their parents.
If you, too, got an extra job this summer, you need to pay just as close attention to those gig earnings. Taxpayers who earn summer income by providing on-demand work, either services or goods, must report those earnings. These side hustle jobs will affect your final tax bill, even if most of your adjusted gross income comes through a salary subject to withholding. The most obvious concerns are making estimated income tax and self-employment tax payments. Check out the Internal Revenue Service's online Gig Economy Tax Center for more on the reporting and payment issues you could face.
4. Adjust withholding to avoid filing time surprises: If you're not prepared, added extra job income, be it from a summer gig or year-round weekend/night side work, could mean facing a big tax bill — and potential penalties for underwithholding — at filing time. A review of your personal and earnings situations now can help you avoid that.
Life events like the already discussed earnings from a side endeavor (or a raise at your wage-paying job); a change in marital status (saying "I do" or "I'm outta here"); or having a child can all affect taxes. The IRS' online Tax Withholding Estimator can help you assess your those changes, as well as possible credits, adjustments and deductions they offer, and determine whether you need to change your paycheck withholding.
By giving your employer a new Form W-4 early in August, the revised amounts taken from your pay will be spread over pay periods for the last five months of the year. If you have to bump up withholding, the longer time frame will lessen the shock to your take-home pay.
More monthly tax moves: Want more tax tasks? Then check out the August Tax Moves over in the ol' blog's right column.
As always, they are just below the August Tax Moves header that's under the clock counting down the days until the Oct. 17 filing extension deadline. And yes, that final tax return filing deadline is discussed in one of that column's tax moves.
I know you just want to finish out the summer, but if you pay attention to some tax tasks, too, you can chill not only during the rest of these last lazy, hazy days of summer, but also at tax filing time next year.
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