2006
Tax planning
The tax return filing season is right around the corner. 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:
| You
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 for
dollar.) |
| The
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 your claim
or (2) the actual tax you paid after February 28, 2003
(if you have records to support the amount of your payments). |
| If
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. |
| If
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. |
Unfortunately, not all of the recent Form 1040 developments
have been positive for taxpayers. For example, a new tax
law change may limit the deduction you can claim for charitable
donations of clothing and other household items.
We will be happy to discuss these and other tax return changes
with you.
Please contact us.
Changes
to Come
Before
taking a break for the winter holidays, the House and the
Senate reached agreement on extending certain
expired and expiring tax and other provisions. These extensions
will have a direct impact on the 2006 Form 1040 – but
are not yet reflected in the tax form. This legislation,
commonly referred to as the “extenders” bill,
extends several previously expired tax breaks, at least through
2006. These include:
- Tuition
deduction - A 2001 tax law change created
an above-the-line tax deduction for qualified higher
education
expenses (defined
in the same manner as the HOPE credit). The maximum
deduction was $4,000 for taxpayers with adjusted gross
income (AGI)
of $65,000 or less ($130,000 for married couples)
or $2,000 for taxpayers with AGI of $80,000 or less
($160,000 for
married couples). (We'll confirm the 2006 amounts
when we cover the
IRS guidance).
- Sales
tax deduction - The American Jobs Creation Act
provided that for tax years 2004 and 2005, a taxpayer
could
elect to take an itemized deduction for state and local
general
sales taxes in lieu of the itemized deduction permitted
for state and local income taxes. Taxpayers were
given two options
for determining deductible sales tax: (1) actual
sales tax paid if receipts were maintained for IRS verification
or
(2) approximate sales tax paid as estimated in
tables provided
by the IRS plus sales tax on certain additional
items that may be added to the table amount.
- Deduction
for educators' expenses -
In 2002, Congress began permitting elementary and secondary
school teachers and
certain other school professionals to deduct
$250 for expenses paid
or incurred for books, supplies, and other classroom
equipment, regardless of whether the taxpayer itemized
his/her deductions.
This deduction had expired at the end of 2005.
|
• 2006
Tax
planning