As we start marching towards April 15th, taxes are probably the last thing on your mind. Well, you need to start thinking about them. The good news is you have some new deductions and credits this year.
Every year, the government passes a variety of laws that impact the tax code. After a couple hundred years, this has resulted in a tax code that is so big and confusing, an entire industry has grown up around trying to interpret it. Ah, only in America!
While the tax code probably constitutes a crime against humanity, there is a silver lining. Every year, the governments tweaking results in new and interesting ways to cut your taxes. This is particularly true when we are about to have a presidential election. While we will have to wait a few years for that, the changes for the 2006 year still offer some nuggets.
Sales Tax Deduction – Before being booted out of Congress, the Republican majority passed a few interesting laws. This occurred so late that the IRS is now scrambling to include the new info in the 2006 tax forms. One of the goodies is an extension of the sales tax deduction. Simply put, you can choose to deduct the total sales tax you paid in your state in 2006 instead of the income tax you paid. This is excellent news for people in certain states that do not collect income tax. If you live in Florida, Nevada and so on, you should claim your total sales tax to cut your tax bill.
Going Green – Oil costs a bundle and the planet appears to be melting. The answer? Tax incentives. If you purchased approved energy-efficient appliances and such for your home during 2006, you can deduct up to 10 percent of the cost so long as the total doesn’t exceed $500. Polar bears everywhere thank you for your act. Make sure to check up on your specific product as the deduction is lower for some things.
IRA Change – If you are over 50, you get a break on your IRA contributions. The limit is increased to $5,000 for the 2006 fiscal year. For those of us under the age of 50, we get nothing.
401ks – Regardless of how old you are, there is good news on the 401k retirement front. You can now stick away a whopping $15,000 for the calendar year 2006. Since contributions are pre-tax dollars, it makes sense to do so.
Charitable Contributions – Government officials apparently are now shopping at AmVets and such. If you want to contribute items to a charity, it now has to be in good and usable condition if you want to claim a deduction. How the IRS is supposed to enforce this new law is a mystery to me and, I bet, most IRS agents. Sometimes, you really have to wonder about the politicians in Washington.
Well, this represents the key changes you should know about for you 2006 taxes. There are more, but I have a pounding headache from reading the code. Feel free to have a go at it yourself if you feel suicidal!
Monday, May 12, 2008
File A Tax Return,
The general assumption is that everyone must file a tax return each year. This is not entirely true. In some situations, an individual or married couple need not file.
As you probably know, the tax code is a tiered system. By this, I mean that it taxes people at different rates based on their earnings. The more your earnings, the higher your tax rate in general. Ah, but what about those that do not earn much during a particular year? Well, you might not have to file at all.
The IRS sets a minimum income level that must be met before a person or persons have to file. As you might guess, the minimums are pretty low. Following are the earning limits for 2006.
Let’s assume you are filing with a singe status. If you are under the age of 65, you do not need to file a tax return if your earnings were less than $8,450 in 2006. 65 or older? Then you must file a tax return only if your earnings were equal to or over $9,700.
Many married couples file returns jointly. There IRS has set minimums for you as well. If both individuals are under 65, the minimum is $16,900. If one of the spouses is over 65, then the number bumps up to $17,900. If both spouses are equal to or over the age of 65, then no tax return is needed unless you earned over $18,900.
For those that are married, but filing separately, a tax return is required if you earned over $3,300. If you are claiming head of household filing status, the magic number is $16,500 if you are under 65. If you are 65 or older, the number bumps up to $14,600.
Assuming you fit any of these definitions, should you take advantage of your right not to file a tax return? Probably not. Why? Well, there are a couple of reasons. First, the IRS may wonder why you didn’t file. This could lead to an audit, particularly if you make decent money in the years before and after the year you don’t file.
Another reason you should file is you may be able to get a large refund. The tax code has sections that help people who have had a bad year. You may be able to claim the earned income credit, child tax credit, health coverage tax credit as well as other credits available to you.
As you probably know, the tax code is a tiered system. By this, I mean that it taxes people at different rates based on their earnings. The more your earnings, the higher your tax rate in general. Ah, but what about those that do not earn much during a particular year? Well, you might not have to file at all.
The IRS sets a minimum income level that must be met before a person or persons have to file. As you might guess, the minimums are pretty low. Following are the earning limits for 2006.
Let’s assume you are filing with a singe status. If you are under the age of 65, you do not need to file a tax return if your earnings were less than $8,450 in 2006. 65 or older? Then you must file a tax return only if your earnings were equal to or over $9,700.
Many married couples file returns jointly. There IRS has set minimums for you as well. If both individuals are under 65, the minimum is $16,900. If one of the spouses is over 65, then the number bumps up to $17,900. If both spouses are equal to or over the age of 65, then no tax return is needed unless you earned over $18,900.
For those that are married, but filing separately, a tax return is required if you earned over $3,300. If you are claiming head of household filing status, the magic number is $16,500 if you are under 65. If you are 65 or older, the number bumps up to $14,600.
Assuming you fit any of these definitions, should you take advantage of your right not to file a tax return? Probably not. Why? Well, there are a couple of reasons. First, the IRS may wonder why you didn’t file. This could lead to an audit, particularly if you make decent money in the years before and after the year you don’t file.
Another reason you should file is you may be able to get a large refund. The tax code has sections that help people who have had a bad year. You may be able to claim the earned income credit, child tax credit, health coverage tax credit as well as other credits available to you.
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