Remember These Key Tax Changes, Credits and Deductions
As taxpayers begin gathering their financial documents for the 2006 filing season, Ernst & Young offers its 2007 Tax Guide that is filled with reminders on new credits and deductions.
Personal Tax Credits for the Purchase of Residential Energy-Efficient Property — A non-business credit of up to $500 is available for certain energy-efficient improvements, such as insulation, or exterior doors and windows. Taxpayers who install photovoltaic heating systems, qualified solar water heating, and qualified fuel cell systems are eligible for the residential energy efficient credit, which is applied to 30 percent of the amount paid (with certain limits).
Reduced Rates on Capital Gains and Qualified Dividends — Long-term capital gains and qualified dividends are taxed at a maximum rate of 15 percent. The improved stock market this year may mean more gains for some investors. The reduced rates were extended through 2010.
Increased Individual Alternative Minimum Tax (AMT) Exemption Amount —
A new law made moved up the AMT exemption to $42,500 ($62,550 for married couples filing jointly) for 2006. The AMT is expected to ensnare about 3.6 million taxpayers this year. You may have to pay the AMT if you have a large number of personal exemptions, a large sum of state and local taxes, itemized deductions, deductible medical expenses, stock options and large capital gains. The IRS “AMT Assistant” can be found at http://apps.irs.gov/app/amt/index.jsp?ck.
Elda Di Re, tax partner with Ernst & Young told WCBS TV in New York: "If based upon your income and deductions you are in the AMT for this year, we are recommending, not pre-paying any real estate taxes before year-end, not making any estimated tax payments before year-end, and frankly, even for good deductions like charitable, you are probably better off saving them until next year.”
Charitable Donations — No longer deductible are contributions of clothing or household items made after August 17, 2006, unless the item is in “good used condition or better.” Money donated to charity after that date must be backed up by a bank record or written communication from the charity indicating the name of the charity, the date the donation was made and the amount of the contribution. Canceled checks, bank or credit union statements and credit card statements are all considered bank records. The deduction for a vehicle donated to charity is usually limited to the gross proceeds from its sale.
Telephone Excise Tax Refund — Last May the IRS announced a tax refund on long-distance or bundled-telephone excise taxes paid between Feb. 28, 2003, and Aug. 1, 2006. Applicants must fill out Form 8913, Credit For Federal Telephone Excise Tax Paid. The IRS has announced standard amounts to figure the refund. The amounts are based on the total number of exemptions claimed on the 2006 federal income tax return: $30 for a person filing a return with one exemption, $40 for two exemptions, $50 for three exemptions and $60 for four or more exemptions. See the IRS website for more information. http://www.irs.gov/newsroom/article/0,,id=164310,00.html
Alternative Motor Vehicle Credit —Various amounts of credit are available for the first 60,000 vehicles purchased of each qualified model. The number of cars that meet the qualifications has increased for 2006.
Remember that you can offer with the IRS to settle for a lower amount if you can’t pay your full tax bill. A new law allows partial payments while the agency considers the offer.
If you’re getting a refund, however, it’s a good idea to file early. It will mean a faster turnaround to get your check.