From buying or selling a home to sending the kids to camp, to buying a fuel-efficient car or even cleaning the garage, summertime activities and expenses can mean tax credits or deductions on a 2007 tax return, provided taxpayers keep records. Summer is also a good time to check withholding, and calculate any tax that is owed on non-salary items like a gain from the sale of stock or other property.
Taxpayers should try to find time between naps or more strenuous vacation activities to check the following so they don’t miss tax-saving opportunities. The tips presented here are an overview – if any of these items apply to you, be sure to contact your tax advisor for details of how you can save on your tax return.
Expenses on a home or vacation home
Mortgage interest and real estate taxes on a second home are deductible as itemized deductions, but the interest deduction only applies to the first $1 million of the total amount of the mortgages on the taxpayer’s primary and secondary homes.
Homeowners can claim federal tax credits of up to $500 for installing energy-efficient doors, roofs, and heating and cooling equipment. Many states also offer tax incentives for energy-efficient expenditures.
Newlyweds (and others) who purchase a home can deduct points as well as mortgage interest and real estate taxes. At the other end of the home-owning spectrum, gain on the sale of a home is usually not taxable, although there are exceptions to this rule.
Moving expenses can be deductible if they are job related and meet other tests. If an employee is reimbursed by the employer for the move, however, some or all of the reimbursement might be considered taxable income.
Day camp for kids
Working parents who send their children to day camp might be entitled to a tax credit for some of the cost under the child and dependent care credit. Payments for overnight camp or for day camp for children over the age of 13 typically do not qualify as child care expenses for this credit.
Tuition bills arrive in August for college students and adults returning for post-secondary education. Students should keep these bills and proof of payment, whether by cancelled check or credit card, to prove eligibility for the Hope Tax Credit or the Lifetime Learning Credit. Other potential tax benefits for education-related expenses include deductions for tuition and interest on student loan payments.
Students with jobs might be exempt from withholding if they had no tax liability in 2006 and they don't expect to have a tax liability in 2007. Students should keep track of any tip income that their employer is not including on their annual W-2 form, for that income is taxable.
Purchase a new hybrid vehicle this summer and you might be eligible for the Alternative Motor Vehicle Credit. The amount of the credit differs depending on the car make and can range from $250 to $4,000.
Beginning this year, the Internal Revenue Service requires documentation of any donation to a charitable organization. Be sure that the documentation shows the date of the gift and the amount.
Withholding and estimates
Taxpayers whose income may have changed in 2007 because they were promoted, changed jobs or earned a bonus can use the IRS Withholding Calculator, using current pay stubs and last year’s tax return to decide if they need to make changes to their W-4 forms.
Individuals who pay estimated tax on should compare current income with last year’s income to avoid being short on estimated taxes.