Friday, November 03, 2006

Tax items to consider before year-end

Here's a checklist of tax savings strategies to apply before the end of December:
* 1-Make Charitable Contributions and Donations: Generally, for individuals,
contributions to tax-exempt charitable organizations are limited to 50
percent of the taxpayer's adjusted gross income for the tax year. Those
unused items cluttering closets can be donated to a qualified charity or
non-profit organization and deducted as charitable contributions.
Document your donations by saving receipts, cancelled checks and any
letters or correspondence from the charity.
2-Pay property taxes in the current year, and if applicable, pay state and local income taxes now: That way you can deduct them for 2006. Any payments made on a credit card or by check dated before the end of 2006 are eligible.
3- Add to your retirement accounts: See if your 401(K) plan offers an
opportunity to "catch up" with additional contributions before year's
end. There's even more time to add to the value of your IRAs, right up
to the April 16, 2007 deadline.
4- IRAs are more generous. The deductible amount for a contribution to a
traditional IRA is up to $4,000 per person, and up to $5,000 per person
age 50 or older. In 2006, workers over 50 can make additional
contributions to their SIMPLE IRAs up to $2,500. If you're self-
employed, you can set up a Simple Employee Pension plan and contribute
up to $44,000 before April 16, 2007.
5-* Check the Amount of Your Medical Deductions for 2006: Taxpayers can
check to see if they have enough medical deductions to itemize (over 7.5
percent of adjusted gross income) this year. It's not too late to
schedule additional dentist or eye doctor appointments. However, it may
make sense to "bunch" medical deductions into one year, and plan ahead
for 2007.
6- Know What Medical Deductions Are Allowed: There are numerous medical
costs that are deductible including lasik eye surgery, doctor-prescribed
weight loss programs, and capital expenses for ramps, railings, etc.
installed in a home to accommodate disabilities. The IRS allows the cost
of smoking-cessation programs as a medical expense, but not the costs of
patches and gums. Don't overlook mileage to and from the doctors,
hospitals, and the pharmacy at 18 cents a mile in 2006.
7- Buy Supplies Now, If You're Self-Employed: Self-employed taxpayers who
use the cash method of accounting can pay bills on or before December
31, to claim the expense on a 2006 return. Stock up on necessary
supplies and equipment and take advantage of the section 179 deduction
of up to $108,000 for fax machines, computers and other big-ticket
8- Sell "loser" stocks. Perhaps you have experienced a stock market slide
and its effect on your portfolio.