By Daily Press staff
Summertime generally brings thoughts of vacations, pool parties and relaxing in the shade, but certainly not taxes.
“The IRS reminds taxpayers that some activities, such as getting married, moving, buying and selling a home, sending children to day camps and having a summer job while out of school can have tax implications,” IRS spokesman Victor Omelczenko said.
Here are a few friendly and cool tax tips to help you through the summer: They may not be high on the list of wedding planning activities, but a few simple steps can help keep tax issues from interrupting newly wedded bliss. If you recently married, check out your new tax situation, advises the IRS. You might save money or even prevent the problem of a missing refund check. ■ Get that refund check. “In 2005, the Postal Service returned over $12 million in refund checks owed to 14,012 California taxpayers, usually because the addressee had moved,” Omelczenko said. “Notifying both the Postal Service and the IRS of an address change in a timely manner can help ensure the proper delivery of refund checks. To check the status of a tax refund, visit the IRS Web site at www.irs.gov <http://www.irs.gov/> and use the IRS’s ‘Where’s My Refund?’ service or call the toll-free refund line at 1-800-829-1954.” ■ Use the correct name. “You must provide correct names and identification numbers to claim personal exemptions or the Earned Income Tax Credit on your tax return,” Omelczenko advises. “If you changed your name upon marrying, let the Social Security Administration know and update your Social Security card so the number matches your new name. Use Form SS-5, Application for a Social Security Card.” ■ Report your change of address. If you and/or your spouse have a new address, notify the U.S. Postal Service, so that it will be able to forward any tax refunds or IRS correspondence. The Postal Service will also pass your new address on to the IRS, which will update your account. You may also notify the IRS directly by sending Form 8822, Change of Address. Or write to the IRS center where you filed your most recent return and provide your full name, old and new addresses, SSN and signature. Remember to let your employers know about any name or address changes so you’ll receive your W-2s after the end of the year. ■ Select the right form. Choosing the right individual income tax form can help save money. Newly married taxpayers may find that they now have enough deductions to itemize on their tax returns. Amounts paid for medical care, mortgage interest, contributions, casualty losses and certain miscellaneous costs can reduce your taxable income, lowering your tax.You must use Form 1040, Schedule A, if you itemize deductions. You cannot claim these deductions if you file Form 1040A or 1040EZ, although you may subtract some other items on these basic forms. ■ Choose the best filing status “Your marital status on December 31 determines whether you are considered married for that year,” Omelczenko said. “Married persons may file their federal income tax return either jointly or separately in any given year. Choosing the right filing status may save you money.”
Figuring the tax both ways can determine which filing status will result in the lowest tax — usually, it’s filing jointly.
According to Omelczenko, many people with children find it less disruptive to move during the summer months when school is not in session. Whether you have children or not, you may find these reminders from the IRS helpful: ■ Moving expenses Your moving expenses may be deductible on your federal tax return if you meet certain tests relating to all three of the following requirements: Your move is closely related to the start of work at a new job location, you meet the distance test, and you meet the time test.
If your employer reimburses you for the cost of the move, the reimbursement may have to be included on your tax return.
For more details on the qualifications for deducting moving expenses or reporting reimbursement, review IRS Publication 521, Moving Expenses. Also see Form 3903, Moving Expenses, which is used to figure the amount of the deduction.
Many people find that home ownership allows them to itemize deductions on their tax returns. If you’re a first-time homeowner, you should know that mortgage interest, “points” paid to obtain the mortgage and real estate taxes are deductible expenses that can be itemized to help reduce the amount of taxes you owe. Other expenses that can be itemized and deducted include medical costs, certain state and local tax payments, charitable contributions, casualty losses and certain miscellaneous deductions. If the total amount of your itemized deductions is more than the standard deduction amount, you can usually benefit by itemizing.
See if itemizing will make financial sense for you by reviewing Publication 17, Your Federal Income Tax and the instructions for Schedule A of the Form 1040. Review Publication 530, Tax Information for First-Time Homeowners, for more information on allowable home-related deductions.
If you sell your main home, you may be able to exclude up to $250,000 of gain ($500,000 for married taxpayers filing jointly) from your federal tax return when it’s time to do your taxes. This exclusion is allowed each time that you sell your main home, but generally no more frequently than once every two years. To be eligible for this exclusion, your home must have been owned by you and used as your main home for a period of at least two out of the five years prior to its sale. You also must not have excluded gain on another home sold during the two years before the current sale.
If you and your spouse file a joint return for the year of the sale, you can exclude gain if either of you qualify for the exclusion. But both of you would have to meet the use test to claim the $500,000 maximum amount.
If you do not meet the ownership and use tests, you may be allowed to use a reduced maximum exclusion amount if you sold your home due to health, a change in place of employment or unforeseen circumstances. Unforeseen circumstances can include divorce or a disaster resulting in a casualty to your home, for example.
For more information, see Publication 523, Selling Your Home.
Many working parents must arrange for care of their younger children during the school vacation period. A popular solution — with favorable tax consequences, according to the IRS — is a day camp program. Unlike overnight camps, the cost of day camp counts as an expense towards the child and dependent care credit for eligible children. Of course, even if your child care provider is a sitter at your home, you'll get some tax benefit if you qualify for the credit.
All employees have federal income tax withheld from their pay, right? Not necessarily. The IRS says that if you are a student working a summer or part-time job, you may be exempt from withholding if: ■ you can be claimed as a dependent (usually on a parent's return), ■ your total 2006 income will not be over $5,150 ■ your unearned income (interest, dividends, etc.) will not exceed $300, and ■ you had no income tax liability for 2005. “You'll still have to pay Social Security and Medicare taxes, but skipping unnecessary income tax withholding will put more money in your pocket now,” Omelczenko advised. “Read Form W-4, Employee’s Withholding Allowance Certificate, carefully before filling it out for your employer.”
If customers tip you, those tips are taxable.You must keep track of the amounts, include them on your tax return, and — if they total $20 or more in a month — report them to your employer by the middle of the next month.
All IRS publications and forms mentioned are available in the Forms and Publications section of the IRS Web site at www.irs.gov or by calling 1-800-TAX-FORM (1-800-829- 3676).
Originally published in the Santa Monica Daily Press print edition on August 10, 2006. Read the original PDF.