What's New in Taxes
Get an early start on reducing your 2006 taxes
Maximize your tax savings this year by getting a jump-start on your planning. Here are a few tips that you can use to reduce your 2006 taxes.
* Increase your deferred compensation. If your company has a deferred compensation plan (such as a 401(k) or 403(b) or similar plan), make sure that you maximize your contributions, since these contributions are made pre-tax. In 2006, you can contribute up to $15,000 in a 401(k) plan (up to $20,000 if you're 50 or older).
* Maximize employer contributions. Many employers now match a portion of the retirement plan contributions that you make. Even if you can't fully contribute, make sure to at least contribute the amount that your employer will match. This is simply "found money" that costs you absolutely nothing and saves taxes at the same time.
* Use your flexible spending account (FSA). Many employers also offer FSAs, allowing you to put away money for future expenses. This is like a pre-tax savings account that will allow you to pay for medical expenses and dependent care costs. Now that the rules for the "use it or lose it" aspect of an FSA have been liberalized, these accounts are even more attractive.
* Maximize your dividends and capital gains. With the preferred tax treatment on both dividends and long-term capital gains, review your current stock and other investment holdings in order to generate dividends and create long-term gains that will minimize your taxes.
* Take advantage of energy breaks. For 2006, there are many new tax credits and/or deductions for the installation of solar water heaters and energy efficient home improvements, such as added insulation, thermal windows, or storm doors. Many of these breaks are available for both individuals and businesses.
* Review your life changes. With so many complicated tax rules, virtually any life change now also involves a tax opportunity. The sooner you recognize these changes and react to them from a tax standpoint, the easier it will be to do the planning necessary to minimize your taxes.
* The sooner you deal with your upcoming tax issues, the more chance you'll have to reduce your 2006 tax bite. Give us a call if you would like help in your 2006 tax planning.