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TIP: Summer Fun Tax Breaks

Tip of the Month

August 2005

TIP: Summer Fun Tax Breaks

Tax breaks for summer fun... sounds too good to be true? Maybe not, if your plans for kids and family this summer meet the key criteria below. As always, consult your personal tax advisor to ensure that these write-offs apply to your situation.

Summer Camp Costs
You may be eligible for a tax credit for your kids’ summer camp costs. The basic criteria are straightforward:
  • Your dependent kids are under 13 years old; and

  • Putting the kids in summer day camp allows you and your spouse to work or go to school. Note: Overnight camps are considered a luxury option and do not qualify for this type of tax credit.
If you meet the above criteria, you can claim a tax credit for dependent-care expenses. The claim amount is tied to your income level. For example: if you earn $43,000 or more, you can claim a credit representing 20 percent of your costs (with a limit of $600 for one child and up to $1,200 for two or more kids). If you have a flexible spending account (FSA), which already allows you to set aside up to $5,000 per year in pretax dollars for child care, talk to your tax expert to determine your best option. Sticking with the FSA tax break may offer you a better deal, depending upon your income and tax bracket.

Employ Your Kids for the Summer
If your children are older and can lend a hand with your business, you can put them on the payroll, and deduct the wages from your business tax returns. Your kids are at a lower tax bracket, and you will benefit from shifting what is essentially your money into their pay packets. Also remember that you don’t have to deduct FICA taxes if your summer help is under 18 years of age. Note: it doesn’t matter whether the business is your primary source of income or a sideline; the benefits outlined above still apply.

Leverage Business Travel
If enrolling the kids in day camp or offering them a job aren’t options, then perhaps you can minimize the high costs of vacation breaks by taking your family with you on a business trip. You can get a little fun too if you extend the business trip for some R&R, made sweeter by a tax break on some of your personal travel costs. Here’s how it works:
  • If at least 50 percent of the trip is devoted to business, then your travel costs (airfare, cabs to hotel etc.) are fully deductible as business expenses. Note: the airfares of family or friends who accompany you are not deductible. Your family only can piggyback their travel costs on yours if your business trip is by car. You may deduct 40.5 cents a mile whether you drive solo or not - in essence, allowing your passengers to ride for free.

  • Hotel and rental car costs are pro-rated for tax purposes - divided between those devoted to business and those that are vacation. For example: If your trip is a week long and 5 of the 7 days are devoted to business, then 5/7 of your accommodation and rental car expenses are considered business-related for tax purposes.


The cost of summer fun can really add up, and tax breaks can give some welcome relief, but make sure your write-offs will pass the taxman’s scrutiny next year. Your professional tax counselor can help you devise the right tax strategies to address your specific situation.
 

These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.

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