Tax Tips To Help You Pay Less Taxes

Tips to Keep In Mind When Filing Taxes This Year

Yes, it’s the time to file tax returns. For some people it will be as easy as cutting a cake but to many it can be a headache. But you don’t have to worry here I will discuss many smart ways of filling your tax returns and saving some cash.

The first and foremost thing I will discuss is how to maximize your tax deductions. Many people avoid the hassle of going through itemizing their tax deductions and opt for standard deductions. Well, sometimes it may be the right thing to do but not always, you can actually end up paying more taxes than you really owe. So what should you do?

To figure out if itemizing would really help you or not we can consider some of the factors that affect what you are itemizing. Some of the factors are home ownership, taxes, charitable donations, medical expenses, and miscellaneous expenses. Now compare your potential itemized deductions with the standard deductions for the 2006 tax year:

- Single taxpayers - $5,150
- Married and filing a joint return - $10,300
- Head of household taxpayers - $7,550

If you are 65 or older or vision impaired, you are further allowed to increase the tax deductions as follows:

Single or Head of Household

65 or older - $1,250
Blind - $1,250
Both 65 or older and blind - $2,500

Married or Widow (er)

One spouse 65 or older, or blind - $1,000
One spouse 65 or older, and blind - $2,000
One spouse 65 or older, and both blind - $3,000
Both spouses 65 or older - $2,000
Both spouses 65 or older, and one blind - $3,000
Both spouses 65 or older, and both blind - $4,000

Well, it’s the truth that many of us just forget to put so many things in tax deductions or benefits and also sometimes due to not knowing. For example earned income tax credit has been there for around 30 years, an estimated 25% of those who were eligible didn’t claim it.

Also, there are many things that are new this year like:

Earned Income for Additional Child Tax Credit

Did you know that for 2006, the minimum earned income amount used to figure the additional child tax credit has been increased to $11,300?

Alternative Minimum Tax

For year 2006:

Alternative Minimum Tax exemption amount increased. The exemption amount has increased to $42,500 ($62,550 if married filing jointly or qualifying widow(er); $31,275 if married filing separately).

Exemption for a child. The minimum exemption amount for a child under age 18 has increased to $6,050. (Before 2006, the limit applied to a child under age 14.)

Foreign Earned Income Tax Worksheet. Taxpayers claiming the foreign earned income exclusion or the housing exclusion must determine the tax on their non excluded income using the tax rates that would have applied had they not claimed the exclusion(s). If you filed Form 2555 or 2555-EZ, you must use the Foreign Earned Income Tax Worksheet in the Form 6251 instructions to figure the amount to enter on Form 6251, line 31.

Qualified cellulose biomass ethanol plant property. No Alternative Minimum Tax adjustment is required for depreciation of qualified cellulose biomass ethanol plant property that is eligible for the special depreciation allowance under section 168(l).

Earned Income Credit Amounts Increased

Earned Income - The maximum amount of income you can earn and still get the credit is more for 2006 than it was for 2005. You may be able to take the credit for 2006 if:

You have more than one qualifying child and you earn less than $36,348 ($38,348 if married filing jointly),
You have one qualifying child and you earn less than $32,001 ($34,001 if married filing jointly), or
You do not have a qualifying child and you earn less than $12,120 ($14,120 if married filing jointly).
The maximum amount of adjusted gross income (AGI) you can have and still get the credit has also increased. You may be able to take the credit if your AGI is less than the amount in the above list that applies to you.

Income from Investment - The maximum amount of investment income you can have in 2006 and still get the credit increases to $2,800.
Also don’t miss out on things like if you have bought a hybrid car then you are eligible for a tax deduction. If you donated anything to charity then you can include that also in itemized deductions. But IRS is tightening the screw for deductions for donations paid to charities by requiring you to have the dated bank record or a dated receipt as a proof.

Also don’t forget if there is anybody going to school, the basic deduction for tuition and fees has increased from $3000 to $4000. Also if you have dependent children you can claim a tax credit of $1000.

I hope you have a clear picture now about how to handle your tax returns this year. Its always wise to file the tax in a timely manner, if you hurry you can miss out many things which you might not have remembered and if you are too late you are losing your money’s worth. I wish you a good luck for your tax returns.