6 Summer Tax Mistakes That Could Cost You Thousands
Many taxpayers risk hefty IRS penalties each summer by failing to update their tax plans when their incomes or expenses change. From skipped quarterly payments to overlooked deductions, these oversights can trigger penalties and interest long before filing season hits.
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Below are the most common ways people end up making IRS mistakes that could cost you big this summer, and how to stop it now.
1. Skipping Your Quarterly Estimated Payment
Many self-employed workers and side hustlers are required to make estimated quarterly payments to the IRS to avoid penalties. Missing or delaying the summer payment can lead to underpayment fees and interest that compound quickly.
"Failing to adjust your withholding or estimated payments after taking on summer income can result in significant IRS penalties and interest, especially if you assume nothing has changed," said Sherman Standberry, certified public accountant (CPA) and managing partner at My CPA Coach.
2. Under-Reporting Summer Side-Hustle Income
Summer gigs, such as tutoring, ride-share driving or Airbnb hosting, can help push total income higher than expected. Failing to properly track and report this influx can trigger an unwanted IRS review or result in a surprise tax bill.
"Failing to adjust withholding or estimated tax payments following a change in income remains one of the costliest summer tax slip-ups," Stanberry said. "If you take on a summer job or a freelance gig and do not increase your quarterly tax estimate or adjust your W-4 withholding, you could incur significant penalties, plus interest on the amount not paid."
The easiest way to avoid this mistake is to maintain detailed records and meet with a tax advisor on a quarterly basis to discuss any changes in income streams.
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3. Getting Vacation-Rental Taxes Wrong With the IRS
Homeowners who rent out a property during summer travel often misclassify rental income or overlook allowable deductions. Failing to properly track and report this influx can trigger an unwanted IRS review or result in a surprise tax bill.
When rental activity isn't documented and treated like a business, with records of stays, expenses and deductions, taxpayers risk losing valuable write-offs and may face penalties if the IRS questions their filings.
4. Not Adjusting Withholding for Seasonal Earnings
Taxpayers with W-2 jobs who take on summer freelance work may assume employer withholding is sufficient. Without adjusting federal withholding to account for extra income, they may unknowingly fall short of what's owed.
"People often assume they can 'deal with it at tax time,'" said Chris Rivera, CPA and founder of The Ecommerce Accountants. "But that extra income isn't having taxes withheld, which can create a large unexpected bill."
5. Overlooking Deductions That Could Offset Taxable Income
Summer-based work and childcare often come with deductible costs, including day-camp fees, mileage, supplies or home-office expenses. Failing to track and claim these seasonal write-offs can leave taxpayers paying more than necessary on a higher taxable income base.
"Parents who fail to keep records and collect Taxpayer Identification Numbers for summer day camps may lose the Child and Dependent Care Credit," said Mark Luscombe, a principal analyst at Wolters Kluwer. "It's a dollar-for-dollar reduction of taxes owed."
6. Skipping a Mid-Summer Tax Check-In
Taxpayers who fail to pause mid-summer to review their total income and tax payments often don't catch problems until penalties have already begun accruing.
A quick seasonal check-in, such as tallying year-to-date earnings and adjusting estimated payments or withholding, can stop this IRS mistake before it snowballs.
"Do a quarterly tax check-up around each estimated payment deadline (April 15, June 15, Sept. 15, Jan. 15)," Rivera said. "During this check-up, review your year-to-date income from all sources, then adjust your withholdings or make an estimated payment before the next due date."
He added, "Treat side hustle taxes like a bill. Each time you're paid, immediately set aside 20%-30% in a separate savings account earmarked for taxes. This prevents the 'shock and scramble' when the IRS bill arrives."
Staying proactive with summer tax planning is the simplest way to stop making costly IRS mistakes. By tracking seasonal income, updating payments and treating side gigs and rentals like real businesses, taxpayers can stay ahead of penalties and keep more of what they earn all summer long.
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This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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