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10 tax mistakes to avoid in 2006

Last year I took a break from writing the usual tax tips and discussed the Corporate Tax Reform Bill that came about shortly before the elections. The article was called Fahrenheit $7.4 trillion because that was the national debt at the time that Congress and the president approved this giant giveaway. Today the debt stands at $8.1 trillion, and you still can't get a cup of coffee as fast as the government can spend $50,000,000 that it doesn't have.

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This year my fine bunch of editors thought that we should focus on taxpayer mistakes rather than government boondoggles. So here, for your edification, are my thoughts on what to avoid in 2006.

Based on deficits and debts, I guess the first mistake that you could make is thinking that taxes will be lower in the future. Of course I could be wrong, because Congress is kicking around proposals to extend the 15-percent long-term capital gains tax rate that was set to expire after 2008. Supposedly, based on Washington math, the lower rate brings in more money and stimulates growth, which increases government revenues that lower the deficit. Of course, these are the same folks that said the deficit was around $315 billion, yet one year later the debt is up by $700 billion.

The second mistake is not hiring a good accountant or tax preparer. Preferably hire an accountant who can be as creative as the folks in Washington when putting together the numbers and guiding you through the never-to-be-simplified overly complex tax code. The panacea of tax simplification has come to a grinding halt faster than private accounts for Social Security. These tips can help you choose a tax pro that best fits your needs.

The third mistake in my opinion is relying on Social Security for retirement. Sure there will be something available for those that contributed, but it may be more need-based. Do your best to maximize pension and IRA contributions. Contributions to 2005 IRAs are up to $4,000, and an additional $500 for those over 50 before the end of this year. If you're in business for yourself, there are some excellent pension plan opportunities available, but some of the best require that you establish the plan before year-end.

Which brings us to the fourth mistake: failing to get organized for the new year. With all the recent problems that have hit us, you not only need to be organized for taxes, you need to be ready for when disaster strikes. It's been my experience that organized clients pay less in taxes because they have a good set of records. Go to the office supply store and buy yourself files for this year and for next. Get your 2004 tax return and organize your files by the major categories on the return. When you get done, you'll have files for wages, interest, capital gains, individual rental properties, charity, mortgage interest, taxes, etc.

 
 
Next: Don't give Uncle Sam too much of your paycheck.
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