There is only a few more weeks left before the end of the year, but you still have time left for some tax-saving moves. Each year brings with it new opportunities and challenges as tax laws change continually.
Here are a few tax saving tips:
1) Something new on the federal return is tax credit of up to $500 for a portion of the cost of conserving energy in connection to items as heating and cooling equipment, windows and doors, and insulation materials. For every $1 invested in a certified items that qualifies you for $1 of tax deduction.
2) Selling stocks that have decline in value can save taxes. Selling bad performing stocks before year-end can result in a 2006 realized loss, which will offset any capital gains and up to $3,000 of this year’s investment return and other income.
3) Beginning this year, buyers of hybrid cars can gain a credit of $250 to $3,150 against their income tax, depending on the model. One Caveat: this tax credit phases out for car manufacturers when their overall hybrid sales top 60,000. Case in point is Toyota. Current buyers of a Toyota Highlander hybrid, for example, will receive a tax credit of $1,300, half of the $2,600 tax credit buyers realized last year.
4) People with Individual Retirement Accounts (IRAs) have until the April 2007 tax return filing deadline to make deposits that count for 2006. The maximum is up to $4,000 with an additional $1,000 allowed to people 50 years or older. Even more advantageous is the opportunity for married couples, as they are permitted to save up to double the caps, even if only one spouse is employed.Deposits to a traditional IRA are tax deductible, but one will have to pay tax when money is withdrawn. Deposits to a Roth IRA, on the other hand, are not deductible, but withdrawals are usually tax-free. Those who are self-employed and hold a SEP retirement account or particular kinds of Keogh plans may be permitted to save as upwards of $44,000, tax deductible.
5) People who usually itemize deductions can opt to lower 2006 taxable income by making charitable gifts, bill clients on a later date, and purchases business equipment and other deductible expenditures before year ends.
6) An interesting surprise this year is the Kiddie tax which can affect parents of children with investment income. Prior to this year, a portion of the investment income of a child under 14 could be taxed at the parent’s higher tax rate on the condition that the income exceeded a cap –$1,700 for 2006. Beginning this year this stipulation applies up to the age of 17.”Parents of older children may have to think about coming up with cash to pay that additional tax,” cautions Donna LeValley, a New Jersey attorney and an editor at “J. K. Lasser’s Your Income Tax.” To keep a child’s future investment income in check, she advises favoring long-term growth, deferred income, and possibly tax-exempt interest.
7) Don’t miss a new tax form line to claim a rebate of up to $60 in telephone excise tax following the Treasury Department’s concession that it erroneously collected a 3 percent levy on long distance calls.The government will refund some of that tax and people who accept a standard amount of $30 to $60 won’t have to dig up past bills or show they called long distance. The amount is based on the number of personal and dependent exemptions claimed on the 2006 return. Self-employed people and other business filers will follow special rules.People who aren’t required to file a regular tax return can use a special 1040EZ-T form to get the rebate.
8) Congress has extended the option available to taxpayers to file by deducting sales tax instead of state taxes on their federal returns. This option is a boon in states where taxpayers do not pay income tax. In addition, taxpayers should take advantage of other local tax saving choices. For instance, in Massachusetts taxpayers should review their state return for a reinstated deduction on certain commuting expenses over $150. There is also an increase in the personal exemption amount up to $7,700 from $7,150 for couples filing jointly. Taxpayers who did not claim taxes on home heating and energy conservation last year can take the deduction for 2006.
9) Some breaks that expired at the beginning of 2006 will be revived if Congress follows through on designs to retroactively reinstate them.Including is a deduction of up to $4,000 for college tuition, as an alternative to the Hope and Lifetime Learning tax credits, and a tax cut of up to $250 for teachers who buy classroom supplies. Also in the balance is the opportunity to claim an itemized deduction for sales tax instead of state income tax.
Earnest Young is an accounting and tax writer for http://www.accentaccounting.net