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CHECKLIST TO CUT YOUR TAXES
Andrew D. Schwartz, CPA
It's not too late to cut your 2006 tax
bill. Prior to December 31st:
Increase your 401(k)
and 403(b) contributions if you haven't been contributing at the
maximum rate all year. This year you can put up to $15,000 into your
401(k) or 403(b) plan. Anyone 50 or older by December 31st can put
away an additional $5,000. If youíre self-employed, consider setting up a
Solo 401(k) by 12/31. Contributing to a 401(k) or 403(b) plan at
work is one of the best tax shelters available to you during your working
Consider selling your
investments held in non-retirement accounts that have decreased in value
since your capital losses can offset other capital gains realized during
the year (including from your mutual funds). Excess losses can then be
used to offset up to $3,000 of wages and other income. Make sure to
wait at least 31 days before buying back a security sold at a loss, or the
IRS will disallow the loss under the "wash sale" rules.
Send in your January,
2007 mortgage payment early enough so it will be processed prior to
12/31/06. By sending in your payment a few weeks early, you can deduct
the interest portion of that payment a full year earlier.
Clean out your closets
and donate your clothing and household items to a charitable organization,
since "non-cash" contributions are deductible if you itemize. Donít
forget to get a receipt. And you should make a list of each item
donated, along with its condition. Effective August 17th, only
donations of clothing and household items in "good condition or better"
qualify for a deduction.
For gifts of money,
making your donation by credit card before December 31st allows you to
deduct the donation on this year's return, even if you don't pay your
credit card bill until 2007. And you always have the option of
donating appreciated investments to charities. You get to claim your
donation based on the value of the assets donated, without paying any
capital gains taxes on the appreciation.
IRS ANNOUNCES HIGHER STANDARD MILEAGE RATES FOR 2007
Andrew D. Schwartz, CPA
The IRS announced that the standard mileage rate will increase to 48.5
cents per business mile driven in 2007. That is an increase of
approximately 9% over the 44.5 cents allowed in 2006. According to the
IRS, the primary reasons for the higher rates were higher prices for
vehicles and fuel during 2006.
When you use your car for business, driving
between job sites is deductible. So is driving between your home and a
temporary job site, job interviews, and conferences. Commuting between your
home and a regular place of business generally isn't tax deductible.
There are two ways for you to calculate your
automobile expenses. You can either claim $.485 per business mile driven in
2007 (increased from $.445 for 2006), or you can base your deduction on the
percentage of miles your car was driven for business multiplied by the
actual costs incurred during the year. Allowable costs include gas,
insurance, repairs, parking at home, and either your lease payments, or if
you own your car, a factor for depreciation.
Generally, unless you drive your car relatively few miles each year, with
most of those miles being allowable business miles, you're better off basing
your deduction on the standard mileage rate.
Let's say you lease a car for $400 a month that you drive only 3,000
total miles during the year. And of those miles, 2,000 qualify as deductible
business miles. By calculating your deduction based on the standard
mileage rate, you'll end up with a deduction of just $970 (2,000 business
miles * $.485 per mile).
What would your deduction be based on the actual expenses incurred,
assuming you spend $1,200 on insurance, $.10 per mile driven for gas, and
$1,200 on parking at home? Based on $7,500 of total automobile
expenses (including the lease payments), multiplied by two-thirds (2,000
business miles divided by 3,000 total miles), your allowable deduction for
your automobile expenses jumps to $5,000 - more than five times the $970
allowed using the standard mileage rate.
Now let's see what happens if you drive 20,000 total miles during the year.
Assuming your allowable business miles remains at 2,000, you can either
claim an automobile deduction of $970 based on the standard mileage rate, or
$920 based on one-tenth (2,000 business miles divided by 20,000 total
miles) of your actual automobile expenses incurred.
|Gas ($.10 per mile driven)
|Parking at home
|Business use % on 2,000
business miles driven
|Allowable deduction for
auto expenses based
on actual expenses
How to Claim The Deduction
Taxpayers who are compensated as employees
generally will claim their deductible automobile expenses as an unreimbursed
employee business expense. These type expenses are reported on a Form 2106
and are deducted as a miscellaneous itemized deduction on the Schedule A.
Keep in mind that miscellaneous itemized deductions are only allowable to
the extent they exceed 2% of your income, and are not allowable when
calculating the Alternative Minimum Tax (AMT).
Those taxpayers compensated as independent
contractors will generally claim their allowable automobile expenses
directly against their self-employment income. For these taxpayers,
automobile expenses should be reported the Schedule C.
Other Deductible Miles
The use of an automobile in connection with a
charitable activity is deductible at a rate of 14 cents per mile in 2007 and
should be reported with other charitable contributions as an itemized
deduction of the Schedule A.
Any mileage driven in connection with a
qualified move is deductible at a rate of 20 cents per mile in 2007, up from
18 cents per mile in 2006, and should be reported on a Form 3903, Moving
And don't forget that medical related mileage
is also deductible. For 2007, medical mileage is allowable at 20 cents per
mile, and should be reported with all other medical expenses on the Schedule
TAX AND FINANCIAL PLANNING CALENDAR FOR
Saving and Investing
4th quarter state estimates should be paid by 12/31 for
people who itemize their deductions and won't be hit by the AMT.
Keogh plans and Solo 401(k)'s must be established by 12/31
529 Plans must be funded by 12/31 to take full advantage
of this year's gift limit of $12,000.
Last chance to maximize annual contributions to your
401(k) or 403(b) plan of up to $15,000, ($20,000 if 50 or
- For 2006, the standard deduction for a single individual is
$5,150 and for a married couple is $10,300. A person will benefit by
itemizing once allowable deductions exceed the applicable standard deduction.
Itemized deductions include state and local income taxes (or sales taxes), real estate taxes,
mortgage interest, charitable contributions, and unreimbursed employee business
- For 2006,
the personal exemption is $3,300. Individuals will claim a
personal deduction for themselves, their spouse, and their dependents.
- The maximum earnings subject to social security taxes is $94,200
for 2006, and increases to $97,500 in 2007.
- The standard mileage rate is $.445 per business mile for 2006,
increasing to $.485 per mile in 2007.
- The maximum annual contribution into a 401(k) plan or a
403(b) plan is $15,000 for 2006, increasing to $15,500 in 2007.
And if you'll be 50 or older by December 31, 2006, you can contribute an extra
$5,000 into your 401(k) or 403(b) account this year.
- The maximum annual contribution to your IRA is $4,000 for
2006 and 2007. And if you turn 50 by December 31st, you can contribute an extra $1,000
that year. You have until April 15, 2007 to make your
2006 IRA contributions.
copyright - 2006 - CPANiche, LLC
You're Invited to Attend Our Complimentary Presentation
Tax and Basic Financial Planning
Issues Applicable to Young Healthcare Professionals
Various members of The
will be hosting a complimentary presentation on the tax
and basic financial planning issues that affect you and your
The presentation will focus on the tax issues surrounding
moonlighting and deducting professional expenses.
Here is a list of cities
where the presentation will be held:
Boston - 1/31/07
For more information, click on the
name of the city.
Tax and financial planning calendar for December, 2006
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