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13 smart year-end tax moves
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| 3. Let
your home help you out
Your home is afforded different tax treatment,
including many deductible
home costs that you can tweak a bit at the end of the year to your advantage.
Start with your next mortgage payment, due Jan. 1. This actually
represents interest for the month of December, so make the payment before the
31st. By accelerating the payment, you get an additional deduction this tax year
for the interest paid. Some tax professionals say you can simply mail this
extra mortgage payment by Dec. 31 and have it count. However, if you actually
get your payment to the bank by the last business day of the year (or a day or
two early), the extra interest will show up on the lender's official paperwork.
That means no curious tax examiner will question any difference between the amount
you claim on your Schedule A and what your lender reports on the Form 1098 that
you (and the IRS) will get in late January with details of your deductible mortgage
activity. Remember, though, that while an early payment will give
you 13 mortgage interest amounts to deduct this year, it means that on your 2007
taxes you'll only have 11 (or 12 if you pay a little early next December, too).
So before you send off that check, make sure you really need the added deduction
on your 2006 return.
The same early bird approach also applies to deductible
property taxes. If your county or municipal tax collector will take
your payment (or part of it) now, pay it to accelerate the tax benefits.
Of course, this only works if you pay real estate taxes yourself,
rather than having your lender pay them from an escrow account.
4. Embrace energy
efficiency
If your residential tax haven needs a little sprucing up, some of
your work could bring you even more tax breaks. On Jan. 1, 2006,
provisions of the Energy Tax Incentives Act of 2005 took effect,
including tax credits for certain energy
efficient home improvements. Credits, which reduce your tax
bill dollar for dollar, range from $50 for the installation of a
whole-house circulating fan to $2,000 for conversion to a solar
water heating system. The credits are available through 2008.
Some of the credits are capped and expenses from multiple
years count toward that limit. Others, however, are available for
each year. If you haven't made any residential improvements yet
this year, check into what you can do now to help cut your coming
tax bill. One winter possibility: a $200 credit for replacement
windows to keep out the cold.
5.
Go for better gas mileage
Tax credits also apply for the first time to hybrid cars. The tax
breaks currently range from $250 to $2,600, depending on the make
and model. However, the tax credit for some of the most popular
fuel-efficient vehicles, the Toyota Prius and other eligible models
from the Japanese manufacturer, were cut in half on Oct. 1, because
the carmaker exceeded the 60,000 sales mark that triggered the credit
reduction.
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