Hardge Financial

 As the end of the calendar year approaches, you should take some time to focus on your taxes.

1. Review your income, expenses and potential deductions: Before you can make any adjustments, you will need to look closely at how much you are earning, spending and saving and what you can possibly deduct. The basic standard deduction amounts for 2006 are:
*Head of Household – $7,550
*Married Filing Joint – $10,300
*Married Filing Separate – $5,150
*Single – $5,150

2. Review your portfolio: If capital gains are high, consider taking a loss to offset some of the capital gains income.

3. Defer income: Unless you have reason to believe that next year will bring you a higher income and move you into a higher personal income tax bracket, you may want to defer income until after the first of the year. If you are self-employed, for example, send the last invoices out late in December so you will more likely receive payment in January. Other possible ways to defer income are
*If you receive year end bonuses, ask your employer if it can be paid to you after January 1st of next year to avoid increasing your total earned income for this year;
*Defer any withdrawals from your retirement accounts until next year.

4. Use up your flex spending plan. If you have a flexible spending plan, which means you have put aside tax-free earnings to cover medical and dental expenses through a plan offered by your employer, you need to use it up. Make doctor appointments now and buy necessary medical supplies that are covered in the plan.

5. HOMEOWNERS-Pay your January 1st mortgage payment on or before December 31st. This allows you to take an additional deduction for interest paid. Remember to add the interest amount to the amount reported by your lender when they send you a 1098 form. You can also prepay next year’s real estate, and/or local taxes by December 31 of this year. If you don’t think your personal income tax bracket will be higher next year, and you’re not affected by the alternative minimum tax, you can make state and/or local tax payments before the end of this year so you can take a deduction this year.

6. INVESTORS-Be careful about buying an actively managed mutual fund. The later it gets in the year, the more likely you will pick up the capital gains distributions on a mutual fund you hardly own. Check the distribution schedule and if it’s late in the year, wait before buying the fund.

7. TEACHERS, take a deduction from your students. You can still take up to a $250 deduction on materials purchased to make the learning experience better for your students. This deduction is also applicable for principals and others who are employed in a school. If you’re not sure if this deduction applies to you, contact the your tax representative or the IRS.

8. If you’re SELF-EMPLOYED, stock up. This is the time to buy all of the business equipment and supplies you haven’t yet purchased. Make sure to mark and save your receipts.

9. If you are able to itemize your deductions, make charitable donations: If you have extra cash, donate money to charity. Save the receipts and use the charitable donations as deductions on your tax return. These are some of the ways in which you can make appropriate changes to lessen your tax bill.

Life Changes

Many things could have taken place since the start of 2005. You will want to consult with your tax professional to see what tax implications, if any, are now applicable to you because of a life change.

*The birth of a child
*Marriage of a taxpayer or their dependent
*Divorce
*Death of a taxpayer or their spouse
*Dependent who graduated college and became employed FT
*Start or closure of a business
*Purchase of a House, RV, or Boat
*Sale of inherited property
*Early withdrawal of funds from a retirement account
*Loss of job
*Retirement of the taxpayer or their spouse

Tax Law Changes for the upcoming season

Many new laws are in effect for the upcoming season. Here are excerpts of some of the new tax laws but be sure to visit the link below to find out about any new tax laws that affect your individual situation.
*Alternative Minimum Tax – For tax year 2006, the exemption amount for alternative minimum tax (AMT) has been increased.
*New restrictions have been placed on Charitable Contributions.
*Earned Income Credit Amounts Increase
*Investment income amount-The maximum amount of investment income you can have in 2006 and still get the credit increases to $2,800.
*Electric and Alternative Motor Vehicle-For 2006, the list of vehicles that are qualified hybrid vehicles for the Alternative Motor Vehicle Credit has been expanded.
*Exemption Amount Increased-The amount you can deduct for each exemption has increased from $3,200 in 2005 to $3,300 in 2006.
*New Option to Split Refunds Between Multiple Bank Accounts

Click here to see the details of the tax law changes