Summer is traditionally a good time to make mid-year withholding adjustments and implement money-saving summer tips. With a little wise planning, you could save a lot on your tax bill. Saving on your taxes certainly beats trying to get a refund from the IRS. Click here to read or watch more IRS Help resources.
IRS spokesman Raphael Tulino said, “Taxpayers should pay no more or no less than what’s owed. While most taxpayers prefer to get a refund, some tax planning done now could boost take home pay or save money down the road.”
This year, the average refund amount per taxpayer is about $2,800 and the IRS has paid out refunds to an average of three out of four taxpayers. That shows how much extra taxes American taxpayers have been paying the IRS. Making some of the following adjustments would bring the taxes paid closer to what should be paid.
1. Correct Withholding
You can ensure you are making the correct withholdings every month by referring to IRS Publication 919, “How do I adjust my tax withholding?” or using the Withholding Calculator at the IRS website, www.irs.gov. If you are a salaried worker and wish to make changes to your withholding, you should fill up and submit a new Form W-4, Employee’s Withholding Allowance Certificate, to their employer. Likewise, if you are self-employed, you can use Form 1040-ES worksheet to correct your withholding payment.
2. 2011 Payroll Tax Cut
Millions of workers are seeing their take-home pay rise this year because the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 provides a 2% point payroll tax cut for employees, reducing their Social Security tax withholding rate from 6.2% to 4.2% of wages paid. This reduced Social Security withholding will have no effect on the employee’s future Social Security benefits.
3. More summer Tax Tips
Especially since summer is often the time of weddings, it is good to decide on whether you wish to file your taxes jointly as a couple. Joint tax deductions may allow newlyweds the opportunity to itemize deductions thus lowering your tax liability.
If you are a working parent who arranges for care of your younger children during the summer, you may opt for a day camp program. Unlike overnight camps, the cost of day camp can count as an expense towards the child and dependent care credit. Up to $3,000 of work-related expenses per qualifying person or $6,000 for two or more qualifying persons can be used to calculate the amount of the credit. For more details, refer to IRS publication 503, Child and Dependent Care Credit.
If you sell your house, up to $500,000 of capital gains may be exempt from taxes. And if you are a new homeowner, you should be aware that mortgage interest, points and real estate taxes may be deductible. If you are facing foreclosure, you may also find favorable federal tax consequences through the Mortgage Forgiveness Debt Relief Act of 2007.