There are only a few weeks left reduce your taxes for 2006 by increasing your deductions and credits.
Here are a few ideas:
Donate to your favorite charity by December 31, 2006. Be sure to get out your checkbook or use your credit card.
That way you’ll get into the habit of not giving cash. Starting January 1, 2007, you must have a cancelled check, bank/credit card statement, or a written receipt from the charity in order to deduct any donation. The IRS will not allow the deduction, even if it is only $1 or $2 of cash, if you don’t have this documentation.
For more information, check out New Rules on Cash Donations to Charities
Collect those clothes that haven’t been worn in a couple years and the unused kitchen appliances and give to your local thrift shop, however, be careful.
A new law was signed a few months ago and as of August 18, 2006, you can only deduct clothes and household items in “good used condition or better” and not “minimal value.” Since there are no tax definitions for those phrases, a good question to ask is “Is it good enough to sell?”
Read New IRS Rules on Deducting Clothing and Household Goods for more details.
Purchase a “qualified” hybrid car
If you purchase a gas-saving car before the end of 2006, you might get a tax credit (subtraction dollar-for-dollar off your taxes) of over $3,000.
First, go to the IRS website, Hybrid Cars and check out the vehicles that are eligible for the credit. You’ll see that different cars and trucks have different credits. The more gas it saves, the higher the credit. The law limits the full credit to the first 60,000 vehicles sold by each automaker. Then the credit is slowly reduced down to zero. So check with the auto dealer to see how much of the credit is available. Go to Buy a Hybrid Car and Get a Tax Credit for other information and links to IRS news releases and fact sheets.
Replace your windows and doors
There is also a new credit if you add energy efficient windows, doors, and insulation to your home. The credit is based on 10% of the cost with a maximum $500 credit (note: no more than $200 of the credit can come from the cost of the windows.) For more energy efficient purchases and details, see Home Energy Credits for 2006 and 2007
These are great ways to reduce your taxes so get going. Before you know it, 2007 will be here!