Illinois CPA Society Offers Ways to Save Money
CHICAGO, Dec. 15 /PRNewswire/ -- The hustle and bustle of the holiday
season is in full gear -- shopping for that perfect present, baking holiday
treats, decorating your home and preparing your 2006 tax return???
Although Uncle Sam is not typically included in your holiday plans,
wrapping up a few simple financial tasks before the end of the year can
help carry the joy of the season all the way through April 15.
The Illinois CPA Society recommends the following tips to consider
doing before December 31 to help save money and minimize your 2006 tax
bill.
1. Maximize your retirement account contributions
If you have a company-sponsored 401(k) plan and are not already
contributing the maximum to it, it's not too late to increase your
contributions. For 2006, you can contribute a maximum of $15,000
($20,000 if you're over 50). Additionally, if you'd like to open an
Individual Retirement Account (IRA), you have until April 16, 2007 to
open it and make a deductible contribution for the prior year. The
maximum contribution is up to $4,000 with an extra $1,000 allowed to
people 50 or older. A married couple can save up to double the caps,
even if only one spouse is employed.
2. Consider Roth IRAs and 401(k) options
Contributing to a Roth IRA or Roth 401(k) option would give you
totally tax free income at retirement. Even though you don't get a
current year deduction, your contributions grow tax free and there is
no tax when you withdraw money at retirement. Roth 401(k) plans don't
have income limitations - if your company plan allows Roth
contributions, see if this option is best for you.
3. Give to charity
Giving money or other items to a charity is a great way to save on
taxes and help others. If you itemize, your contribution is tax-
deductible. Be sure to get your donation postmarked or in the hands
of your favorite charity by December 31 and obtain a receipt for
donations of $250 or more.
4. Defer income
If you're self-employed or have sideline income, consider deferring
income into 2007 by delaying billing. Employees don't have a choice of
when they get paid, but if you're in line for a year-end bonus, you
might ask your employer to hold off until January. Of course, it only
makes sense to defer income if you expect to be in the same or lower
tax bracket next year.
5. Reap the tax benefits of being green
In addition to helping the environment, there are also tax benefits to
being green. If you're going to make your home more energy efficient
within the next two years, you can get up to $500 in tax credits. If
you have a new home that is energy efficient and uses 50 percent less
in heating and cooling costs than other homes, you can get up to
$2,000 in tax credits. Also, buyers of hybrid cars starting this year
can get a credit of $250 to $4,000 against their income tax, based on
the model of their car. But credits apply only to the first 60,000
hybrid cars sold by each automaker.
6. Use flexible spending account dollars
A new law enacted for 2005/2006 loosened the use-it-or-lose-it
constraint by allowing spending plan participants to make claims
against their accounts for up to two months and 15 days after the end
of their benefit year. That means employees on a calendar benefit year
now can use their 2006 FSA contributions for expenses incurred as late
as March 15, 2007. And if you're planning any elective surgery (e.g.,
laser eye surgery) for next year, you can prepay enough to use up this
year's shortfall and allocate those expenses to next year's medical
reimbursement plan.
7. Prepay your mortgage payment
If you itemize deductions, consider paying your January 2007 mortgage
payment by December 31, 2006 to deduct the interest this year.
8. Offset gains with losses
Tally up your investment winners and losers for 2006. Then, determine
whether it makes sense to take tax losses by selling your unattractive
stocks. If your losses exceed your gains, you can deduct up to $3,000
in capital losses ($1,500 for married couples filing separately)
against your other income, reducing the amount on which you must pay
taxes. Losses in excess of $3,000 can be carried forward into
subsequent years.
9. Convert to non-deductible interest
Consider whether it might make sense to convert non-deductible
interest into a tax break by applying for a home-equity loan. You can
use the proceeds of a home-equity loan to pay off your high-interest
credit-card balances and, in most cases, fully deduct the interest you
pay on home-equity debt.
10. Organize your tax records
Organizing your tax records and paperwork early gives you time to
request copies of any missing documents and makes it less likely that
you will miss valuable deductions when you file your 2006 tax return.
If you are unsure of the documents you need to complete and support
your tax return or to take advantage of other tax-savings
opportunities, consult a CPA.
"In the midst of last-minute shopping trips and holiday gatherings,
getting prepared for your income taxes is probably the last thing you have
on your mind. However, by taking a few minutes to address these tax-savings
opportunities you may be able to alleviate some of the crush of your
holiday spending," stated Elaine Weiss, president and CEO of the Illinois
CPA Society. "A CPA can look at your total tax situation and provide
personalized advice on which strategies will allow you to hold onto the
maximum amount of your hard- earned money."
About the Illinois CPA Society
The Illinois CPA Society, founded in 1903, is the fifth largest state
CPA society in the nation, with more than 22,500 members. It is the only
professional organization that represents CPAs in Illinois. During its over
100 years of existence, the Society has advanced the highest ethical and
financial standards of the profession, and has been a leader in educating
the public on financial issues.
SOURCE Illinois CPA Society
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Related links:
http://www.icpas.org
CONTACT:
Janelle Schwartz, Communications-Media
Manager, Illinois CPA Society, +1-312-993-0407 ext. 251,
schwartzj@icpas.org
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