Top 10 Year-End Tax Tips
The hustle and bustle of the holiday season is in full gear — shopping for that perfect present, baking holiday treats, decorating your home and preparing your 2006 tax return??? Although Uncle Sam is not typically included in your holiday plans, wrapping up a few simple financial tasks before the end of the year can help carry the joy of the season all the way through April 15.
The Illinois CPA Society recommends the following tips to consider doing before December 31 to help save money and minimize your 2006 tax bill.
1. Maximize your retirement account contributions If you have a company-sponsored 401(k) plan and are not already contributing the maximum to it, it’s not too late to increase your contributions. For 2006, you can contribute a maximum of $15,000 ($20,000 if you’re over 50). Additionally, if you’d like to open an Individual Retirement Account (IRA), you have until April 16, 2007 to open it and make a deductible contribution for the prior year. The maximum contribution is up to $4,000 with an extra $1,000 allowed to people 50 or older. A married couple can save up to double the caps, even if only one spouse is employed.
2. Consider Roth IRAs and 401(k) options Contributing to a Roth IRA or Roth 401(k) option would give you totally tax free income at retirement. Even though you don’t get a current year deduction, your contributions grow tax free and there is no tax when you withdraw money at retirement. Roth 401(k) plans don’t have income limitations - if your company plan allows Roth contributions, see if this option is best for you.
3. Give to charity Giving money or other items to a charity is a great way to save on taxes and help others. If you itemize, your contribution is tax- deductible. Be sure to get your donation postmarked or in the hands of your favorite charity by December 31 and obtain a receipt for donations of $250 or more.