Writing Off Your Summer: Preparing For Next Tax Season

We’ll admit it: few of us are thinking about tax season in August. With beach season in full swing, it’s one of the least appealing things to focus on. Yet spending a few minutes on next year’s taxes might pay off in a big way. There are actually a number of summertime tax deductions you can take advantage of as long as you know what they are and how to claim them. Today, let’s put down the sunscreen and examine six ways to write off your summer.

Summer Vacations

Could it be true? Is it really possible to write off the cost of a summer vacation? The answer: it depends. Uncle Sam loves money so much that he’s willing to give you a tax deduction to help you make even more, so he can collect a little extra in taxes. You can use this to your advantage because you can deduct any “ordinary and necessary expenses” related to your business, including trips. The “ordinary and necessary” part is and has always been a little fuzzy because it’s different for each industry. Generally speaking, the idea is that if it’s common and appropriate for your type of business, then it’s acceptable. 

Key things to know: you can’t deduct your family’s expenses, but you CAN deduct your own transportation, lodging, meals & expenses that are directly related to your business. Expenses that are lavish (unreasonable) or extravagant or that are for personal purposes are not deductible. If your business travel requires you to be away from the general area of your tax home longer than an ordinary day’s work and you need rest to fulfill the demands of your business then the travel expenses are deductible. When preparing your taxes, a TurboTax tax expert can assist you with correctly recording your business travel expenses. 

Daycare

For kids, summertime means two months of stress-free leisure. For parents, it means suddenly needing someone to watch their kids while they work. Daycare centers are a common option, and depending on your tax situation you can deduct the costs of sending your kids there. You may be able to claim The Child and Dependent Care Credit if you paid expenses for care so that you could work or look for work.  

Important takeaways include: you must be using daycare services so that you can work or look for work. Sorry – you can’t stick your kids in daycare while you spend all day at the casino and write it off. Also, you cannot pay your spouse, a parent of the child, dependent, or your own child under 19 (even if they are not dependent on your tax return) to care for your child and write it off. To qualify, the child has to be under age 13, but there is no age limit if your child is disabled. Finally, the child being cared for must be claimed as a dependent and must live with you for more than half the year.

Summer Camp

Summer camp may also be deducted via the Child and Dependent Care Credit.  Here are some specifics on taking the deduction:

The credit is worth up to 35% of what you spent on childcare expenses in a year up to the $3,000 for one qualifying dependent and up to $6,000 for two or more qualifying dependents. Your credit percentage will depend on your adjusted gross income (AGI).

Children must be under the age of 13 at the time they went to summer camp or received any qualifying care. The camp may provide a specialized activity – like soccer, chess or computer training – so you can toss in some focus along with the care. There is no age limit if your child is disabled. 

One unfortunate catch: you actually cannot use this deduction for overnight camps, only day camps. 

Energy Improvements to Your Home

Not all summertime tax deductions relate to vacationing. Making energy-efficient improvements could save you money come tax time. to your home.  If you make renewable energy improvements to your home, such as solar, wind, geothermal, fuel cells, or battery storage technology, you may qualify for an annual residential clean energy tax credit. 

To qualify: you must claim the residential clean energy credit for improvements to your main home, but you won’t be able to claim the credit if you’re a landlord or other property owner that doesn’t live in the home. This is ideal for people who intend to make energy improvements without knowing about the tax credit because it provides a deduction for something they were already going to do. So, if you’ve been on the fence about going green until now, this might be the nudge you need to take the plunge.  

Parties For Employees

Summer offers the perfect opportunity to throw company picnics, barbecues, or pool parties. Not only do they contribute to a relaxed work atmosphere, they also provide a potential tax deduction for the business. You may be able to deduct 50% or all of the cost of having a holiday party as the meal and entertainment expenses are both ordinary and necessary. This means it must be common and accepted in your business or trade. Please take note: there are specifics regarding what can and cannot be deducted. Check IRS Publication 463 for more details.

That being said: it’s still a good idea to keep firm records to include all who attended the gathering, just in case the IRS audits your business and demands proof that it was a work event.  Your records must prove business purpose, the amount of each expense, the date and place of entertainment, and the business relationship of the persons entertained.

Hire Extra Seasonal Workers

If you’re a business owner, you can lower your tax bill even further by hiring additional summertime workers. Thanks to the Work Opportunity Tax Credit (which rewards businesses that “invest in American job seekers who have consistently faced barriers to employment”). This federal tax credit is available to employers who hire and employ individuals from one of 10 targeted groups facing significant barriers to employment. In general, you may qualify for a tax credit is worth 40% of first-year wages up to $6,000 per employee that is a certified member of a target group and performs at least 400 hours of service. 

One of the 10 targeted groups included in the Work Opportunity Tax Credit is a “qualified summer youth employee,” which allows you to hire a 16 or 17-year-old (this age on the hiring date or May 1 -whichever is later).  The youth summer employee can only work for you between May 1-September 15. Note they can not have been employed for you prior to May 1st. As long as these workers meet those qualifications and lives in an “empowerment zone (EZ)”, you may be able to deduct up to 40% of the first $6,000 of wages paid to them.

Didn’t make that decision to hire a potential employee who fits into the target group this summer?  You may want to make them an offer soon and increase your bottom line.  The Work Opportunity Tax Credit is slated to expire on December 31, 2025, and it is uncertain if it will be extended.

Don’t worry about knowing these tax rules. Meet with a TurboTax Full Service Expert who can prepare, sign and file your taxes, so you can be 100% confident your taxes are done right. Start TurboTax Live Full Service today, in English or Spanish, and get your taxes done and off your mind.