Whether you are sprucing up the house, buying a new car, going back to college or planning a fall wedding, the Internal Revenue Service offers tax tips for you to consider. Some tax breaks and a review of your current tax situation may result in a bigger refund or less taxes to be paid come tax time.
Newlywed Advice - It may not be high on the list of wedding planning activities, but there are a few, simple steps that can help keep tax issues from interrupting newly-wedded bliss. There are some practical things to attend to when the honeymoon's over and you get your feet back on the ground.
Higher Education Tax Credits: The Hope and Lifetime Learning Credits are education credits taxpayers can subtract in full from their federal income tax, not just deduct from their taxable income. Taxpayers may claim only one of these credits for the same student in the same tax year. The credits phase out as income rises from $45,000 to $55,000 ($90,000 to $110,000, for married filing jointly). Taxpayers use Form 8863, Education Credits, to claim either the Hope or Lifetime Learning Credits.
“Taxpayers should consider higher education tax credits and deductions for which they might be eligible for 2006,” said IRS spokesperson Gregg Semanick. “Education tax credits and deductions can help offset those costs. For more information on higher education tax credits and deductions, see IRS Publication 970, Tax Benefits for Higher Education.”
Homeowners Energy Tax Credits: - During 2006, individuals can make energy-conscious purchases that will provide tax benefits when filling out their tax returns next year. The new law provides tax credits for making your principal residence, which must be in the United States, more energy efficient and for buying certain energy efficient items.
“Consumers who purchase and install specific products, such as energy-efficient windows, insulation, doors, roofs and heating and cooling equipment in the home can receive a tax credit of up to $500,” said IRS Spokesperson Gregg Semanick.
Hybrid Vehicles Generate Tax Credits - During 2006, individuals can make energy-conscious purchases that will provide tax benefits when filling out their tax returns next year. These benefits include tax credits for various types of alternative motor vehicles, including hybrid vehicles. The tax credit for hybrid vehicles applies to vehicles purchased on or after Jan. 1, 2006.
Consumers seeking the credit may want to buy early since the full credit is only available for a limited time. Taxpayers may claim the full amount of the allowable credit up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th vehicle. For the second and third calendar quarters after the quarter in which the 60,000th vehicle is sold, taxpayers may claim 50 percent of the credit. For the fourth and fifth calendar quarters, taxpayers may claim 25 percent of the credit. No credit is allowed after the fifth quarter.
For more information and a complete listing of all qualified hybrid vehicles as they become available, visit IRS.gov.
Check Your Withholding at IRS.gov: With the current tax year past the halfway mark, the Internal Revenue Service encourages taxpayers to take a few minutes to check their withholding to make sure what is being taken out of their paychecks matches their projected taxes.
If not enough is withheld; individuals will owe tax at the end of the year and may, in some cases, have to pay a penalty. If too much tax is withheld, they will lose the use of this money until they get their refund.
“At this time of year, it makes good financial sense to take a few minutes to make sure you’re on target with your withholding,” said IRS spokesperson Gregg Semanick. “If you’re not having enough withheld, you may still have time to avoid a penalty. If you are having too much withheld, now is the time to put a little more into your own pocket.”
On-line assistance is available at the IRS Web site. Click on “IRS Withholding Calculator” on the “Individuals” page. With the help of current pay stubs and a copy of last year’s tax form, users can check to see if they are withholding the right amount. Information from this automated calculator can then be used to revise a W-4.
Recordkeeping: With the current tax year “winding down,” the Internal Revenue Service is encouraging taxpayers to take the time now to gather and organize their tax records to reduce stress at tax time.
“You can avoid headaches at tax time by keeping track of your receipts and other records throughout the year,” said IRS spokesperson Gregg Semanick. “Good recordkeeping during the year saves you time and effort at tax time when organizing and completing your return.”
In most cases the IRS does not require you to keep records in any special manner. Generally speaking, however, you should keep any and all documents that may have an impact on your federal tax return. Such items would include bills, receipts, invoices, mileage logs, canceled checks, or any other proof of payment, and any other records to support deductions or credits you claim on your tax return.
Generally, tax records should be kept for three years, but some documents, for example, records relating to a home purchase or sale, stock transactions, IRAs and business or rental property, should be kept longer. For more information on what types of records to keep, see IRS Publication 552, Recordkeeping for Individuals.
Assistance: For more information or to access IRS forms and publications, visit the IRS Web site at www.irs.gov. Forms and publications can also be ordered by calling toll-free 1-800-TAX-FORM (1-800-829-3676). Telephone assistance is available at 1-800-TAX-1040 (1-800-829-1040).