A Quick Guide for Last Minute Tax Strategies

November 10, 2006

Act now before it’s too late! A recent H&R Block press release details how we’re running out of time to reduce our taxes for 2006. This quick guide summarizes each strategy, its potential savings, and important things to consider. Read them through, if any apply to you, get on the ball!

1) Retirement Contributions
Strategy
If you haven’t contributed the maximum for your 401k or IRA for 2006, increase contributions in November and December.

Savings
Contributions to your regular IRA and 401k will reduce your Adjusted Gross Income (AGI), lowering your overall tax bill. Read more about your AGI in this article by Five Cent Nickel.

Things to Consider
Unlike a regular IRA, contributions to your Roth IRA will not reduce your adjusted gross income but will still pay off big time in the long run! The 2006 contribution deadline for both the Regular and Roth IRA is April 16 2007.

2) Charitable Giving
Strategy
The rules around tax deductions for charitable giving have become more stringent and require additional documentation in 2006. Make sure you are familiar with these rules.

Savings
Various. The key point here is to deduct and document the donations appropriately. Things to Consider The press release notifies us of the following:

  • “After Aug. 17, 2006, donations of clothing or household items that aren’t in ‘good used condition’ or better won’t be tax-deductible”
  • “An additional form must be filled out to claim a deduction for non-cash contributions that total more than $500. The IRS also may disallow deductions for items that have little or no monetary value.”
  • “For cash donations of $250 or more made during 2006, deductions are granted only with written acknowledgment from the qualified organization. For 2007, all cash contributions must be documented with a bank record, such as a cancelled check, or a written acknowledgment from the qualified organization.”

3) Energy Efficient Home Purchases
Strategy
Lower your energy bill with qualifying energy-efficient home improvements and also earn a tax credit.

Savings
This strategy offers a $500 maximum one-time credit for 2006.

Things to Consider
The press release reminds us that this credit “applies to qualifying energy-efficient home improvements” and that we should “look for certification that the item is eligible for the credit”. Purchases must be made by the end of 2006.

4) Education Expenses
Strategy
Pay any spring 2007 semester college tuition bills in 2006.

Savings
Someone with modified AGI under $45K ($90K for married taxpayers filing jointly), may qualify for the Hope or Lifetime Learning credit. Learn more about the Hope at H&R Block or the Lifetime Learning credit at Free Money Finance.

Things to Consider The credit is not available for people with modified AGI of $55K or more ($110K for married taxpayers filing jointly) and begins phasing out at modified AGI of $45K ($90K for married taxpayers filing jointly).

5) Hybrid Vehicle Purchase
Strategy
If you’re planning on buying a hybrid vehicle, do it before the end of 2006.

Savings
The press release says the purchase “could qualify taxpayers for tax credits ranging from $250 to $2,600, depending on the make and model of the vehicle and when the purchase is made.”

Things to Consider
The tax credit varies widely between make and model so research this before buying.

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Ben

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Ben
Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn't like the other kids... His addiction to personal finance has paid off for his family and now he's helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.

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One Response to A Quick Guide for Last Minute Tax Strategies

  • bill

    One important thing to consider is if you file on the last filing date, make sure you mail it yourself and that you have enough postage. That way you know it’s done right.

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