Seize these 7 ‘last-minute’ tax-savers

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in Small Business Tax,Small Business Tax Deduction Strategies

If you’re a procrastinator, you might wait until the last minute to file your personal tax return. Perhaps you’re delaying the inevitable because you figure that you’ll owe a hefty tax bill.

Strategy: Don’t throw in the towel on your ’06 return just yet. You still can cut your tax bill at this late date. Here are seven strategies:
  1. Salt away money for retirement. If you’re not actively participating in an employer-sponsored retirement plan, contribute to an IRA before the April 17 deadline. Reason: You can deduct IRA contributions of up to $4,000 for 2006 ($5,000 if you’re age 50 or over). Similarly, self-employed taxpayers can lower their AGI by contributing to a SEP, SIMPLE or Keogh plan by the tax-return due date, plus extensions.

  2. Compare state tax liabilities. Thanks to a late 2006 tax law reviving this tax break, you can deduct the higher of the two state taxes. State-by-state tables list the sales tax, but you can add actual sales taxes when you buy big-ticket items like cars and boats.

  3. Reduce taxes due on bond interest. If you have invested in taxable bonds, you can deduct the amortized premium on Schedule B, Form 1040.

  4. Refuse installment-sale treatment. When it makes sense, “elect out of” installment sale reporting on real estate sales. For instance, it’s a good move if you have capital losses this year to absorb the full gains from an installment sale.

  5. Obtain tax relief for unpaid debts. An individual taxpayer can deduct unrecovered amounts from personal loans that have become totally worthless. Reminder: Claim the write-off as a short-term capital loss on Schedule D.

  6. Trade off investor tax breaks. Consider giving up the preferential tax rate for long-term gains (a maximum tax rate of 15 percent) if this significantly increases your deduction for investment interest expenses. Compare the results first.

  7. Dial in correct telephone-tax numbers. The IRS continues to flag taxpayers for claiming excessive long-distance telephone-tax refunds or credits. Even worse, it reports that one out of three early filers is missing this tax break. (IRS News Release 2007-21) To play it safe, take a safe-harbor amount: $30 if you’re claiming one personal exemption; $40 for two; $50 for three; and $60 for four or more.

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