Get a Jump on Next Year's Taxes

So go back over your W-4 to get yourself in better shape in 2007. Better yet, check out the Web for W-4 calculators. For instance, H&R Block's Web site has one. You just drop in a few numbers regarding your tax situation and it will help you determine how many allowances you should take.

Portfolio Planning

Now move on to lines 8 and 9 of your form 1040 -- that's your interest and dividends. Did you pay tax on interest income this year? If so, it might be time to consider readjusting your portfolio holdings.

While fixed income that offers an interest payment used to be the way to go, with interest rates rising, that's not necessarily the case these days. And thanks to the more beneficial tax rates on dividends, equities that offer a dividend might actually leave more money in your pocket.

Remember, any interest you receive from bonds or other savings vehicles is taxed at your regular tax rate, which could be as high as 35%. But a few years ago, President Bush lowered the tax rate on qualified dividends to 15%. So even if the dividend you receive from a stock is smaller than the interest from your bonds, you may actually be able to keep more of it thanks to the lower tax rate. So you may want to consider swapping some bonds for a few dividend-paying stocks.

Then look at line 13 -- capital gains or losses. If you had a lot of capital losses in 2006 and didn't have the capital gains to offset them, you were only able to take $3,000 in net losses on your 2006 tax return. In that case, you probably had to carry your remaining losses forward to 2007.

Remember that to calculate your net capital gain or loss, you must first net your losses against your gains. Once you wipe out your gains, you can only take another $3,000 in losses.