With the Thanksgiving festivities over and your relatives long gone (whew!), you can happily get back to your daily routine.
But before you dive into holiday-shopping mode, you really need to take a minute to do some tax planning.
I know, you'd rather be back at your Thanksgiving table eating Aunt Milly's dried-out stuffingthan talk taxes right now. But think of it this way: the more you do now, the more money you keepout of Uncle Sam's pocket. And that should be a big enough motivator.
So let's run through some of the new things you're going to see on your 2006 tax return so you can make as many last-minute savings steps as possible.
Here's to Your Green Thumb
The Energy Tax Incentives Act of 2005 offers a few new credits -- albeit not very large ones --to folks who attempt to save the environment.
There are two new energy-efficient tax credits for your home. So you could get a credit on your tax return for some of the energy-efficient paraphernalia you add to your home.
As long as you make these energy-efficient improvements to your existing home, you'll qualify, whether you itemize your deductions or take the standard deduction on your tax return. So if you did work on your primary home or are planning on doing so before the year is up, save your receipts.
The first credit applies to the various ways you insulate your principal residence to reduce heat loss or gain. So if you install new skylights, outside doors, windows or pigmented roofing, you'll be able to claim a tax credit for 10% of the cost. The same goes for high-efficiency furnaces, water heaters and central air conditioners.
Unfortunately, the credit maxes out at $500, and no more than $200 can be attributable to windows. But, hey, it's better than nothing.
The next credit focuses on solar heating. You can claim a 30% credit for the cost of the solar energy systems you install to heat the air or water in your home. Big note: If you install a heater in your pool or hot tub, that cost doesn't count. This credit is capped at $2,000 apiece for home furnaces and water heaters, and is available for vacation homes as well.
Be Hollywood: Buy a Hybrid
Hybrids are very hip these days. Cameron Diaz and Leonardo DiCaprio drive them. Maybe youshould too.
Especially since you'll get a tax credit for buying one. You can get a credit of up to $3,400, although it varies among the different cars available. For example, the credit on the Toyota Prius is $3,150, but the Ford Escape hybrid 4WD will only get you a $1,950 credit. Again, it's better than nothing.
Just keep in mind these credits are limited to the first 60,000 hybrids that the manufacturer sells. So if you buy the 60,001st car, your credit will decrease and eventually the available credits will be phased out completely.
Check out the
IRS Web site for a full listing of the hybrid cars and their corresponding credits.
Junk the Junk
It used to be much easier to donate the "junk" in your home to charity and get a charitablededuction for it. Well, no surprise, Congress decided that "junk" wasn't worth a deduction.
The new rules for 2006 say that your donations of used clothing and household goods must be in"good used" or "better" condition or you can't deduct them as a charitable contribution. Of coursethe law doesn't define what it means to be "good used" or "better," so you have to use your bestjudgment.
You can presumably still donate that unwanted clothing and those usable household items aslong as the clothes are not full of holes and the household items actually work.
So go through your house and donate things like furniture, electronics, appliances and linensthat you no longer use to beef up your charitable deduction. Just make sure they're not, well,junk.
And just to be safe, keep a list of all the stuff you donate and take a picture of it all.Then throw both in your tax file so you have proof of the condition of the items you donated ifUncle Sam ever comes knocking.
Credits Up in the Air
While the sales tax deduction, the $250 deduction for teachers' supplies and the studenttuition and fees deduction all expired at the end of 2005, but rumors abound that they will beextended for 2006. But in typical congressional form, the year is almost over and we still don'tknow the deal.
We'll keep you posted and let you know as soon as we hear. In the meantime, save yourreceipts.
And a final reminder: Unless your flexible spending account allows you to carry your moneyover through March 31, 2007, you need to use up that account before year-end or you'll lose themoney. So use the money for your medical visit co-pays, eyeglasses, or even over-the-countermedications. Just be sure to spend it.
Take some time to save yourself some money. The more you keep in your pocket the more youcan spend on your holiday shopping!
Tracy Byrnes is an award-winning writer specializing in tax and accounting issues. As a freelancer, she has written columns for wsj.com and the New York Post and her work has appeared in SmartMoney and on CBS MarketWatch. Prior to freelancing, she spent four years as a senior writer for TheStreet.com. Before that, she was an accountant with Ernst & Young. She has a B.A. in English and economics from Lehigh University and an M.B.A. in accounting from Rutgers University. Byrnes appreciates your feedback;
to send her an email.