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August 5, 2011 > Summer Savings with Tax Planning

Summer Savings with Tax Planning

By Alan L. Olsen, CPA, MBA (tax) Managing Partner Greenstein, Rogoff, Olsen and Co., LLP

Lemonade by the pool, watching firework shows and soaking in the sun are not the only thing that you should plan on doing this summer. With a little tax planning, your summer fun can bring you a pocket full of dollars in tax savings. Here are some summer savings tax planning tips that you may benefit from:

1. Cool off with an energy efficient air conditioning system in your home. Is it getting a little hot at home? If you install an energy efficient air conditioning system in your home, you can claim up to 10% of all qualifying expenses with the Residential Energy Property Credit up to $500[1]. The energy efficient improvements must have been made to your primary residence. Make sure to save your receipts and Manufacturer Certification Statement for your personal records. Also, you will need to file IRS form 5695 with your 2011 Tax Return in order to claim the credit.

2. Give your kids summer jobs by hiring them. Are your kids looking for summer jobs? Put them on the company payroll of your family business. When you employ your children, for 2011 you can pay them up to $5,800 in salary free from Federal tax[2]. The "kiddie" tax doesn't apply to wages, so children under age 18 get this tax break, too[3]. Have your children put $5,000 into a Roth IRA, where it will compound tax-free over time[4]. When the money is left in the account until they turn 59, they will never have to pay out any tax or penalties on that money or its earnings. If your business is not incorporated, and the children are under age 18, neither you, as employer, nor your children will owe Social Security or Medicare tax on their wages.

3. Take your summer vacation in an electric vehicle. If you purchase an electric vehicle this summer, you can take a tax credit for up to 10% the cost of the vehicle up to $2500. This purchase must have been made between February 18, 2009 and December 31, 2011. The Internal Revenue Service states that "To qualify, a vehicle must be either a low speed vehicle propelled by an electric motor that draws electricity from a battery with a capacity of 4 kilowatt hours or more or be a two- or three-wheeled vehicle propelled by an electric motor that draws electricity from a battery with the capacity of 2.5 kilowatt hours[5]."

4. Consider a vacation home this summer. Taxpayers are allowed to claim deductions for their primary residence and one vacation or second home. In the case of the main residence, tax breaks are usually limited to mortgage interest and property tax deductions. However, there are more deductions available when you own a second or vacation home. For more information see www.groco.com.

5. Deduct Summer Day Camp Expenses for your Children. If your children are attending a summer day camp this summer, those fees may be tax deductible. With the Child and Dependent Care Credit, you can deduct child care expenses that you paid while you work or looked for work. The credit can cover up to 35% of qualifying expenses up to $3000[6].

So, remember if you plan on spending a few dollars this summer, double check to see if your expenses will qualify you for a tax credit or deduction.

Sources:
[1] 2011 Federal Tax Credits for Consumer Energy Efficiency. US Department of Energy. Web. www.energystar.gov. July 2011.
[2] In 2011, Many Tax Benefits Increase Slightly Due to Inflation Adjustments. IRS. Web. www.irs.gov. July 2011.
[3] Tax Breaks for Summer Jobs.WSJ. Web. www.smartmoney.com. July 2011.
[4] 2011 IRA Contribution and Deduction Limits. IRS. Web. www.irs.gov. July 2011.
[5] Energy Incentives for Individuals in the American Recovery and ReinvestmentAct. IRS. Web. www.irs.gov. July 2011.
[6] Summer Day Camp Expenses May Qualify for a Tax Credit. IRS. Web. www.irs.gov. July 2011.

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