It’s summer and school is out, which means plenty of students will be out looking for summer jobs. Keep in mind, though, that the IRS wants you to remember that you won’t be keeping all of the money you will make from that summer job. You will have taxes withheld from your pay check.

There are six IRS tips to keep in mind when you start your summer job.

1. On your first day of your new job, you will be required to fill out a W-4, Employee’s Withholding Allowance. Your employer will use this form to determine how much tax will be taken out each pay period. If you have more than one summer job, you will fill out a W-4 for each job. To make sure the correct amount is being taken out, you can check the Withholding Calculator on the IRS website.

2. Depending on the type of summer job you get, you might get tips as part of your income. All tips are taxable and you must account for that at tax time. 

3. A lot of students take on odd jobs during the summer to make some extra money, and any income your receive, from either baby-sitting or mowing lawns, is taxable.

4. If you earn $400 or more from those odd jobs, you will also end up having to pay self-employment taxes, because you are, basically, self-employed. These taxes pay for your Social Security and Medicare benefits. Social Security and Medicare are for the self-employed as well as those who work for someone else, for when you retire. Your self-employment tax is calculated on the 1040 Form, Schedule SE.

5. If you are in the ROTC program for advanced training, your food and lodging allowances are not taxable. But active duty pay, the pay you get for summer ROTC, is subject to tax withholding.

6. There are special rules that apply if you are a newspaper carrier. You are considered a “direct seller” and are self-employed as far as your taxes are concerned, if you meet the following conditions:

-Your job involves delivering newspapers.
-All of your pay comes from sales instead of the hours you work.
-You are under contract as a newspaper delivery service worker that states you are not an employee and must withhold your own taxes.

Keep these simple tips in mind when looking for your summer job and you will not be penalized for not withholding enough in taxes come tax time.

Daniel Stoica Accounting Professional

Most working parents still have to work during the summer, even when their children are out of school. Because of this, there are extra expenses for child care if you have a child 13 years of age or younger. These expenses add up, but there is now a tax credit for parents who send their children to summer day camp.

 The Internal Revenue Service recently announced that expenses for summer day camp for your child could give you tax credits on your federal tax return.

Dianne Besunder, media relations spokesperson for the IRS said, “If you pay someone to care for your child, spouse, or dependent, you can claim the Child and Dependent Care Credit on your federal income tax return.”

People who are working, or looking for work, need to have child care while they do so. Day care and summer day camp qualify for this tax credit, which can be up to 35% of your expenses, depending on your income.

There are 9 qualifying factors that allow you to claim the Child and Dependent Care Credit.

1. Care must have been given to at least one qualifying person. This would be your dependent child who is 13 years old or younger, a spouse and anyone else who is physically or mentally disabled whom you care for. You must list each person on your tax return.
2. Care must be given so you, or your spouse, can work, or look for work.
3. You, or your spouse, must have earned income from wages, salary, tips, or earnings from self-employment. If you, or your spouse, were a full-time student, or care for a disabled person, you may qualify as having earned income.
4. You may not pay your spouse or other dependent, for the care. Your child may not be 19 years old or older at the end of the year, even if they are not your dependent. The care-giver must be identified on your tax return.
5. You must file as single, married filing jointly, head of household, or qualifying widow(er) with a dependent child.
6. The qualifying person must have lived with you for at least six months out of the year. The only exceptions are birth or death of the qualifying person, or if the child is of separated or divorced parents.
7. For the 2011 tax year, you are allowed up to $3000 of your expenses for the year for one dependent and $6000 for two or more dependents.
8. The expenses must be reduced by the amount of dependent care benefits that are provided by your employer which are deducted or left out of your income.
9. If you pay someone to care for your dependent in your home, you may have to withhold social security and Medicare tax, and also pay federal unemployment tax. Publication 926, Household Employer’s Tax Guide, explains this in detail.

Use the 2441 Form, Child and Dependent Care Expenses, to figure you credits, and send it in with your tax return.

Daniel Stoica Accounting Professional

It’s almost summer, which means vacation time for most people. Wouldn’t it be great if everyone could take a deduction for vacation expenses? Well, if you are a small business owner, you can. It’s absolutely legal to deduct your vacation. Below are examples of how to do it (but remember to contact your tax professional to get the most complete information). 

To qualify for this deduction, you have to meet the following criteria:

1. If you are self-employed or own a small business
2. If, on your next trip, you combine business with personal.

In terms of a  small business, this includes any type of self-employment, full or part-time, home-based or bricks and mortar. The deduction refers to any type of small business: sole proprietorships, partnerships, corporations, and limited liability companies.

To deduct a U.S. trip, you are allowed to combine business with personal, but the main reason for the trip must be business related. The IRS defines a trip taken for business purposes as the number of business days must be more than the number of personal days. Also, time of travel is considered part of the business days.

If the number of business days are more than 50% of the total vacation days, then  you can take the deduction. This is what you are allowed to deduct: 100% of your transportation expenses and 100% of the expenses for your days on the road, including hotel, cab fares, rental car, business related fees, dry cleaning, laundry and meals.

Meal expenses are subject to the 50% rule. When 100% of your on-the-road expenses, including meals, are for the business days, they are deductible, and the actual amount of the meal deduction will be 50% of the meals cost. Basically, you are only allowed to deduct 50% off of your meal expenses.

Transportation expenses include air fare to and from, if you take a plane. If you drive, you are able to deduct the actual cost of gas or take the deduction that is the current IRS-approved mileage rate.

The IRS has made a list of all of the allowed deductions on their website. Below is an example of what is and isn’t deductible.

Trip Primarily for Business:  See the IRS website for full details at irs.gov. 

You can deduct all of your travel expenses if your trip was entirely business related. If your trip was primarily for business and, while at your business destination, you extended your stay for a vacation, made a personal side trip, or had other personal activities, you can deduct your business-related travel expenses. These expenses include the travel costs of getting to and from your business destination and any business-related expenses at your business destination.

To make sure you get the maximum amount of deductions on your vacation, and so you take the correct deductions, please consult with a tax professional for help.

Daniel Stoica Accounting Professional