End of the year and the tax return filing season is right
around the corner. Below is a list
of things you should consider before the year end to reduce your tax liability.
Make Charitable Contributions: Consider making charitable contributions before year-end both to obtain the maximum tax deduction and to fulfill any charitable programs or commitments you may have established.
a New Car:
If you need a new car, now is the time to purchase or lease.
Frequently, dealers are anxious to clear out last year’s inventory prior
to year-end. In making your choice, consider the federal tax (and occasional
state tax) advantages for buying fuel-efficient vehicles.
Examine your current investments to determine those with unrealized
losses. Consider selling those investments to take the loss this year. You
can deduct up to $3,000 in capital losses in excess of capital gains.
However, do not let the tax savings outweigh the investment potential. You
might consider "swapping" for a similar company in the same
industry if you like the potential of the industry.
Consider paying tax-deductible expenses prior to year-end. Some
common examples are real estate taxes, quarterly state or local income
taxes, investment-related expenses, dues. These must be paid by December 31
to obtain a deduction this year. Professional guidance will be helpful here.
Evaluate your progress for the year. How close were you to your
budget? Recalculate your net worth. Compare it to the value at the beginning
of the year. How did you do?
Make Gifts to Minimize
If your estate planning indicates a potential estate tax liability,
consider making gifts before year-end to minimize estate taxes. Example: You
can give away $12,000 a year ($24,000 if you are married and your spouse
elects to participate) to each of a number of donees free of gift tax,
thereby reducing your estate tax liability.
Year-End Tax Review
Estimate your taxes due for the year, and consult your advisor on
what steps you should take before year end.
Review Budget vs.
Compare income and expenditures with your budget. Make adjustments as
appropriate to your expenditures. Make sure you have invested your planned
savings amount for the year.
There have been a number of changes that may reduce the
tax you owe on the return you will be filing soon. Among the changes:
can claim a new tax credit of up to $500 for energy-saving improvements you make to your home. These include such
items as energy-efficient windows and doors and circulating air fans. (Keep
in mind that a tax credit, unlike a deduction, reduces your tax bill dollar
IRS is refunding federal excise taxes
paid by telephone subscribers on long distance toll calls. The mechanism for
this refund is the 2006 Form 1040. Your refund equals either (1) a flat
dollar amount based on the number of the personal exemptions you claim or
(2) the actual tax you paid after February 28, 2003 (if you have records to
support the amount of your payments).
you itemize your deductions, your deductions are phased down if your income
exceeds certain levels. The higher your income, the bigger the phase-down.
However, starting with the 2006 return, this phase-down has been cut
back. So, even if your income has increased, you may be able to get a bigger
benefit from your itemized deductions.
you claim the standard deduction instead of itemizing your deductions, there
is good news for you too. The standard deduction for 2006 is higher than it
was in 2005.
We will be happy to discuss these and other tax return
changes with you. Wishing you happy holidays.