As you sit down to do your taxes this year, make sure you take the credits and deductions that will help you keep more of your money and pay the government as little as possible.
- Hunt down missing deductions in '06 tax forms
- Nearly forgotten Coverdell accounts still have zing
- Budgeting a chore, but it has its rewards
- Rising medicare costs expected to take toll
- The savings game
- The Leckey file
- Getting started
- Spending smart
- Taking stock
- Dividends retain their pull for investors
- The week ahead
So be on your toes.
You still can deduct sales taxes paid during 2006, instead of state income taxes, if you think relief from sales taxes will give you a better deal. You can still deduct college tuition costs if you don't qualify for the even more generous Hope or Lifetime credits for paying for college. And, if you are a teacher, you can still deduct up to $250 of the money you pulled out of your pocket to buy school supplies.
If you treat yourself to one of the electronic tax packages--such as CCH's Complete Tax, Intuit's Turbo Tax or H&R Block's Tax Cut--they should be up to date on credits and deductions and will save you from the confusion of the late-arriving changes.
If you do use electronic filing, the IRS requests that you hold off submitting your taxes until Feb. 3. Until then, the government's systems won't be equipped to handle the three deductions that were reinstated by Congress so late in the process.
If your income is below $52,000, you can use tax preparation software free at www.irs.gov.
The beauty of using software--either the free versions on the IRS site or those you purchase--is that you don't have to pore through descriptions on deductions, trying to figure out if they fit you or not. The software asks you questions, and then tells you if you qualify. It also does the calculating for you.
To capture these deductions on paper forms, however, you are going to have to take an unusual step--adding them to places on your form that you might least expect.
-- Sales-tax deduction
If you are claiming a sales tax deduction, you will need to write ST on Line 5 of Schedule A (Form 1040). Pay particularly close attention to this tax if you live in Florida or other states where sales tax relief is likely to help you more because they don't have a broad-based income tax, says CCH Inc., a Riverwoods, Ill.-based a tax information publisher.
To claim the deduction, determine the sales taxes you have paid during the year. If they exceeded the income tax you paid at the state level, claim sales taxes instead.
If you don't have your sales tax receipts, you can use the "Optional State Sales Tax Table," found by using the search function at www.irs.gov. Based on your income and state, it will show you how much sales tax you likely paid, and you can claim that amount. If you want to add up all your sales taxes from receipts, you might be able to get a larger deduction than the averages on the table.
-- College tuition deduction
If you are claiming the higher education tuition deduction, you would write T on Line 35 (the line previously reserved for domestic production activities) on Form 1040.
A deduction typically is not as good as a credit, so if your income is low enough to position you to take either the Lifetime Credit or Hope Credit, consider them instead. The Hope Credit could give you a refund of up to $1,650 for a student in their first two years of college, and the Lifetime Credit could provide up to $2,000 a year for anyone in college, graduate school, technical school or career-enhancing classes.
Your right to claim the credit will be phased out when your modified adjusted gross income is between $45,000 and $55,000 when single, or $90,000 and $110,000 if married.
The deduction, however, is available to married people with incomes up to $160,000 and singles up to $80,000. Depending on your income, you might be able to deduct $4,000 in college tuition and fees.