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