Gear up for new tax savings
Prep for what has changed - or gotten trickier - on your 2006 return and make filing more rewarding
(Money Magazine) -- There are some new savings opportunities this tax-filing season - and some traps to watch out for. Here are five.
Gather ye sales slips
The break: The day Congress adjourned, lawmakers brought back the option to deduct your state and local sales taxes instead of your state and local income taxes.
What you need: You can use the IRS estimate of your sales taxes (which is based on your exemptions and income). But if you bought a car, boat or motorcycle in 2006, dig up the receipt.
You can add the sales taxes you paid on it to the IRS number.
Deduct gifts with care
The break: This year it'll be tougher to take a charitable deduction for old junk you gave away after Aug. 17, 2006. New rules say that clothing and household goods must be in "good used condition or better" to qualify.
"If a thrift shop is selling similar things in the same condition, you're probably okay, " says Bob Scharin, RIA senior tax analyst at Thomson Tax & Accounting.
What you need: Keep a list of your donations. Snap a picture of the stuff for an even better record.
Get credit for the kids
The break: If you paid someone to watch kids under age 13 so that you could work or study, you may be able to take the child- and dependent-care credit. It's worth as much as $1,050 for one child, $2,100 for two (it varies based on your income). Day camps count; sleepaway ones don't.
What you need: Have on hand the address and tax identification number of the day-care provider or camp.
Earn green rewards
The break: If you made your home more energy-efficient in 2006 - you added insulation, say, or replaced drafty windows or bought a furnace - you may qualify for a new tax credit worth as much as $500 ($200 for windows). If you bought a new hybrid car, you're entitled to a credit of $250 to $2,600, depending on the model and the sale date.
What you need: To read more about which improvements qualify, go to ase.org/taxcredits. For your hybrid, be sure to get documentation from the dealer noting your date of purchase and the amount of the credit.
Be smart about education perks
The break: Congress extended the tuition deduction, which lets you write off as much as $4,000, a $1,120 savings in the 28 percent bracket. (The top adjusted gross income to qualify is $160,000 for married couples.)
What you need: Dust off those '06 tuition bills. But if your AGI is below the limit for the more valuable HOPE and lifetime learning credits ($110,000 for married folks), grab one of them instead.
The HOPE saves you up to $1,650, the lifetime learning credit as much as $2,000.
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