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2006: A look back - A look ahead  
  Taxpayers cleaned up with new credits last year, but be forewarned: Big Brother will be looking more closely in 2007.
 Personal finance calendar  Personal finance calendar 

Taxes 2007: Good planning can reduce tax bill

Embrace energy and tax savings
During the last few years, rising fuel prices have resulted in tax enticements from Uncle Sam that are designed to encourage Americans to save on energy, too.

Are you considering making some home improvements? If you choose energy-efficient upgrades that are approved by the IRS, you can pay for some of the home work with the tax credit you'll get.

These credits, which range from large-scale solar power projects to things as simple as replacing windows or adding insulation, began in January 2006. But you don't have to rush at the end of the year to get the tax break. The credits are available in 2007, too. So look into the tax-break requirements and potential reward before you start any remodeling.

Take the same sort of energy-conscious approach if you're thinking of buying a new set of wheels.

Drivers who choose energy-saving hybrid vehicles can now get a credit on their tax return. The exact amount depends on what kind of IRS-approved auto you buy and when you purchase it. So before you head to the dealership, be sure you have the latest data, such as this story, to ensure you get the vehicle you want and the maximum available tax credit.

Examine your investments
It's always a good idea to periodically evaluate your investment portfolio. It's especially important when it comes to your taxes.

If you sold any holdings during the year and made a profit, you'll owe taxes on that money. You can reduce or possibly eliminate that tax bill by selling corresponding assets on which you'll take a loss by Dec. 31.

In the coming year, as you look to rebalance your investments, make sure you choose assets that pay qualified dividends. Thanks to tax-law changes several years ago, and just extended through 2010, certain dividend payments will cost you less in taxes. They are taxed at the same rate as long-term capital gains, which for most investors is 15 percent, compared to the ordinary income rates which go as high as 35 percent.

Less income means less tax
The year might be winding down, but there is still time to trim your eventual 2006 tax bill by reducing your taxable income.

-- Posted: Nov. 1, 2006
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