Year-end tax tips
SIKESTON -- With 2007 weeks away, the tax season is just lurking around the corner. And tax professionals insist it's never too early to prepare for filing, which begins Jan. 2.
"Don't forget all the tax credits you're eligible for when preparing to file," said Phil Cluck, owner of Fax Tax in Sikeston.
The type of credits available is so broad, Cluck said. Taxpayers can receive credits on education, children, energy, earned income, adoption, elderly, etc.
"Make sure you're getting everything you're qualified to get and by doing that, see a qualified tax professional," Cluck said.
Karen Martin, office manager of H&R Block in Sikeston, said in January, watch the mail closely for incoming tax documents. Keep them in one place so they will be ready when the time comes to file the 2006 return.
"It's a good idea to save all tax-related documents -- even if you think they won't affect the current year's return," Martin said.
Individuals who will be receiving a W-2 from your employer should save their last paycheck stub to make sure the year-to-date figures match what has been reported on the W-2, Martin said. Notify your employer of any discrepancies, she added.
Anyone who has moved since they started working for an employer in 2006 should make sure their employer has their new address so their w-2 won't be delayed, Martin said.
"For someone who has reached the age of 70-1/2, it's good to make sure you take the required minimum distribution from your IRAs or other retirement plans. If you don't, you may owe a 50 percent penalty on the amount you should have taken plus ordinary income tax," Martin said.
Those eligible to deduct their IRA contributions can make traditional IRA contributions to decrease their 2006 income, Martin said.
"For people who are employees, it's a good time to come in and look at your withholding to make sure you have enough tax withheld," Martin said.
Self-employed people should make sure they have enough estimated taxes paid in to meet projected obligations to avoid penalty for underpayment, Martin said.
And don't forget charitable contributions. Any financial donation made using a credit card before year-end can be deducted on your 2006 return, even if it isn't paid until 2007.
"This is a good time to assess if you've made all the contributions you've made for the year," Martin said.
Other year-end tax tips, which were provided from the National Society of Accountants, include:
-- Take stock of stocks. Review current year stock and mutual fund sales to determine if a net gain or loss. If there's a net gain, then selling stocks that would produce a net loss make sense. A net capital of up to $3,000 can be deducted against other income, such as salary. Any excess losses can then be carried forward to future years.
-- "Kiddie Tax" update. The new tax law raises the age threshold for the "kiddie tax." For 2006, any unearned income received by a child under 18 that exceeds $1,700 is subject to federal tax at the parents' top marginal tax rate. Consider shifting investments into growth stocks that produce little income, tax-free municipal bonds or municipal-bond funds, Series EE bonds or CDs that mature in the next year.
-- Reducing the tax on Social Security benefits. People who receive Social Security benefits can be taxed on a high percentage of their benefits. Investing in T-Bills or CDs that don't mature until next year can lower the provisional income in the current year and lower the tax rate. Also, investing in growth stock that produces little income can have the same result.
-- See your tax professional. Make an appointment with your tax professional before year end. Opportunities missed can mean cash in the bank. Don't be one of the many taxpayers who look back and say, "If I only knew about this before year end."