Jeff Schnepper at MSN Money has some year-end moves that could reduce your 2006 tax bill. The following are the summary of the article. For details, click here.
The easy stuff
Charitable deductions. Make the charitable donations before December 31.
Use up your flexible spending account (FSA) dollars. Use them or lose them. The IRS allows purchases made up through March 15, 2007, to count.
Make your January 1, 2007, mortgage payment on December 31, 2006. So you deduct the interest payment for 2006. However, you can’t deduct it again from 2007 return.
Pay your taxes early. Pay real estate taxes due in the beginning of 2007 by December 31 to get the deduction a year earlier.
Medical and miscellaneous deductions. If you expect you are going to exceed the limit on medical expenses (7.5% of AGI) and miscellaneous itemized deductions (2% of AGI), speed up your spending before the year end.
Maximize your pension or IRA contributions. You can contribute $15,000 this year to retirement plan such as 401(k) or 403 ($15,500 for 2007).
Make the most from capital gains and losses. If you have net capital gains, sell losers to offset those gains.
New breaks from the new tax laws
The “kiddie tax” age has been increased to 17. This tax applys to children who are 17 or less and earn no more than $1,700 (in 2006) in interest, dividends, capital gains and other non-wage income.
Tax-free IRA distributions to charities. If you’re age 70 1/2 or older, for 2006 and 2007, you can distribute as much as $100,000 directly from your IRA without recognizing any income.
Larger contribution limits to retirement plans. The $4,000 limit on contributions on IRAs will rise to $8,000 in 2008 and will be indexed to inflation after 2010.
Reduced tax rate on capital gains and dividends extended through 2010. The maximum tax rate of 15% on long-term capital gains is extended until 2010.
Income limitation for Roth conversions disappears in 2010. Starting in 2010, anyone can convert IRAs to Roth IRAs.
This article was originally written or modified on . If you enjoyed reading this post, please consider subscribing to my full RSS feed. Or you can also choose to have free daily updates delivered right to your inbox.
EverBank Money Market Account 1.25%: Open an EverBank Money Market Account with a minimum balance of $1,500 and earn 1.25% bonus rate for the first six months. The first year APY is 1.01% for account balance up to $50,000. Find out more about this offer.