Summer is coming to an end. This becomes apparent whenever you enter a big box store and see the shift of stock away from swimsuits and beach umbrellas towards backpacks and winter coats. But did you know that warm weather is not the only thing about to come to an end? There are also certain tax savings that will expire with the end of the summer season.
What are some summer specific tax savings? Many of these tax savings involve child care. Parents are wise to review the costs used to care for their children over the summer months. In many cases, expenses may qualify for tax savings. Two examples include:
- Summer day camp. Did your kids go to a summer day camp? Odds are high the costs for the camp could qualify for a tax break.
- Child care costs. You may also be able to claim the child and dependent care tax credit for 20 to 35 percent of child care costs. This generally qualifies for up to $3,000 in expenses for one child or $6,000 for families with multiple children.
It is important to note that proper paperwork is needed to avoid tax controversies for taking advantage of these tax savings. In the event of a tax audit, the Internal Revenue Service (IRS) will likely require proper documentation to support the claims. This is true even if you use a full-time babysitter or nanny. As the employer, you should cover Social Security and Medicare taxes, income taxes and other “nanny taxes” for the caregiver. A failure to do so could lead to penalties in the event of an audit.