Avoid the summertime tax blues with these planning tips

If you picked up a part-time job for some extra summer spending money, you may have to set aside some of your cash for taxes. Here are some tips to help you manage the taxes on your summer earnings:

• Take advantage of tax-free earnings limits. If you anticipate making less than the annual standard deduction ($14,600 for single taxpayers in 2024), none of your earnings are subject to federal taxes! If possible, earn at least that amount each year to maximize your tax-free earnings. Remember, this only applies to earned income like your summer job. These rules do not apply to sources of income such as interest income or dividend income.

Tax Tip: If your annual earnings will be less than the standard deduction, you can claim EXEMPT on your Form W-4 if you work part-time for a business. That prevents federal income taxes from being withheld from your paycheck. And don’t forget to review state and local taxes and regulations, which can be another source of tax surprises!

• Review the need to make estimated payments. As an independent contractor, you are responsible for paying all taxes on your earnings. This is done by making quarterly estimated tax payments to the IRS using Form 1040-ES. In addition to income taxes, contractors also need to pay self-employment taxes of 15.3% on earnings at the federal level. You may also need to pay estimated taxes at the state level.

Tax Tip: Track your expenses and save receipts. By doing this, you can subtract eligible expenses like mileage and supplies from your gross earnings. Use this lower income number to calculate your self-employment tax and correctly estimate your quarterly income tax obligation.

• Closely monitor tax withholdings. As an employee, your employer withholds taxes based on what you claim on Form W-4. The tax tables used by this form to calculate your withholdings unfortunately do not account for seasonal jobs. This typically results in paycheck withholdings being too low for supplemental income workers and too high for students working during the summer.

Tax Tip: If you anticipate earnings in excess of the standard deduction, request a revision of your withholdings. Use tools on the IRS web site, review last year’s tax return, or ask for help to estimate the correct amount to withhold. From there, ask your employer to increase or decrease your federal and/or state withholdings.

With a little tax planning, you can ensure that your summer job or side hustle provides the income you’re looking for without the disappointment of unexpected taxes.

One of my primary objectives is to help you achieve your financial goals through a holistic approach that is tax-efficient in my wealth management and tax resolution practice. For more information, visit www.fredtfoxiii.com.

Fred T. Fox is a Lawton native who owns his own business.