Take Time to Trim a Few Bucks of Your Taxes
By Earnest Young
It’s prudent taxpayers to plan ahead for credits and deductions
Thanks to the 2006 federal tax credit many people are able to buy their dream car. This credit applies to a variety of hybrid vehicles, but unfortunately it begins to phase out after the manufacturer sells more than 60,000 vehicles. After that the credit shrinks, and then it just phase-out. Research shows that hybrid owners can save up to $40 of gas cost a week.
Among taking such measures like making charitable donations, contributing to 529 college savings and 401(k) plans, and pruning the stock portfolio, buying a hybrid car is another way taxpayers can take before the end of the year to reduce their tax bills come April. “Just because you aren’t rich doesn’t mean it’s not worth it to sit down to see what you’ve done during the year, and to see what you can still do to save yourself some money,” said Harris Abrams, ‘RIA tax analyst with Thomson Tax & Accounting.
December is a good time to calculate your likely tax liability for 2006 and come up with an estimate for 2007, too. Once you are finished with your 2006 estimates, consider whether your income and deductions are likely to change in the coming year. Here are some other steps to help you reduce your April tax bill.
Make charitable donations:
You will have to keep records of what you donate, and according to Internal Revenue Service, the items have to be in good condition.
Spend flexible spending accounts:
Now is the time to use the funds in your flexible spending accounts or lose them.
Prune portfolio:
If you find yourself with more capital gains than you anticipated, see whether you have any losing investments you can sell.
Donate to 529 plan:
If you have opened a 529 plan and are married, you can deduct up to $10,000. If you are a student, you can deduct up to $5,000. For more information, see nysaves.org.
Contribute more to 401(k) plan:
Employees can sock away up to $15.000 ($20,000 if they are 50 or older) to a 401(k). If you have a little cash left over, consider increasing your contribution this month.
Prepay mortgage as well as state and local taxes:
Consider prepaying your mortgage, state income taxes or local property taxes so you can add to your deductions for 2006.
Pay spring semester tuition:
Those planning to take classes in the spring should consider paying their tuition this month and claiming the Lifetime Learning credit.
Adjust withholdings:
If you’ve estimated your tax liability and found it much different from what you’ve paid, you may want to change your withholding.
Taking these steps now can make a big difference on April 15, experts said. According to Earnest Young of Accent Accounting and Taxes "when you get to April it is too late to do any planning."
Accent Accounting & Taxes: (http://accentaccounting.net) Accounting for small businesses and individual tax
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