Unless you occasionally bump into your accountant at the swimming pool, you probably don’t give much thought to your taxes in the summer. But even as the summer winds down, there are things you can do to reduce your federal and state tax bills. No need to knock your tax preparer off his inflatable raft. These are steps you can take on your own.
– Save money on sales taxes. This year, several states have expanded the types of purchases eligible for a sales-tax exemption, says Dan Schibley, a state tax analyst at tax publisher CCH. Connecticut is waiving sales taxes on energy-efficient appliances through Sept. 30.
– Keep good records of your child’s day camp costs. Day camp can be fun, educational – and expensive. But you may be able to recoup some of those costs when you file your taxes next year.
Your day camp bills may be eligible for the child and dependent care credit. This credit allows working parents to claim from 20 percent to 35 percent of child care expenses, up to $3,000 a year for one child, or $6,000 for two or more. The actual amount of your credit will depend on your adjusted gross income. If you earn less than $15,000 this year, you can claim up to 35 percent of child care camp expenses. If you earn more than $43,000, your credit is limited to 20 percent. A credit is more valuable than a deduction because it represents a dollar-for-dollar reduction in your tax bill.
For day camp expenses to qualify for this credit, your child must be under 13 years old. Expenses for an overnight camp don’t qualify.
You also can use money from a dependent care flexible spending account to pay for day camp, says Donna LeValley, a tax lawyer and spokeswoman for J.K. Lasser’s Your Income Tax 2007. These plans let employees contribute pretax dollars to an account that’s used to cover the costs of child care. But if you use money from your dependent care account to pay for day camp, you can’t claim the dependent care credit for the same costs.
If you’re planning to claim the dependent care credit, make sure you keep a copy of your day camp bill, LeValley says. You should also get a taxpayer identification number from the business or organization that operates the camp.
– Give your health care flexible spending account a checkup. August is an excellent time to review your health care flexible spending account, which lets you use pretax dollars to pay for medical and dental expenses that aren’t covered by insurance. If there’s still a lot of money left in your account, make an appointment for an eye or dental exam.
Remember: If you don’t spend all the money in your account by the end of the year – or March 15, 2008, if your plan provides a grace period – you’ll forfeit what’s left. You’ll have an easier time getting an appointment now than in December, when procrastinators are scrambling to spend what’s left in their accounts.
– File for the phone tax refund. Even in the lazy summertime, a little extra cash is nice to have. So make sure you haven’t overlooked the telephone federal tax refund, a one-time refund worth $30 to $60, depending on the number of exemptions on your return. Just about everyone who has a phone qualifies, yet about 30 percent of taxpayers failed to claim it when they filed their 2006 returns.
If you overlooked the refund, you can still claim it by filing an amended return. Use Form 1040X and claim your credit on Line 15. You can download Form 1040X, and find more information about the phone tax refund, at www.irs.gov.
