|Taxes 2007: Good planning can reduce tax bill
If you have control over your income, put off receiving payments until January.
If you itemize,
you also can lower your taxable
income by increasing your deductions.
Make deductible payments due
in January, such as the year's
first mortgage payment and its
associated interest in late
Generosity also can produce tax rewards. Charitable donations generally are tax deductible in the year made. So any gifts you make to qualified nonprofits by Dec. 31 can reduce your 2006 income.
If any of those
donations are clothing or household
items, make sure you follow
the new IRS guidelines. The
tax agency now requires that
any such property donations
be in "good" or better
shape or your deduction will
be disallowed. Tax attorney
Donna LeValley, who also edits
the annual "J.K.
Lasser" tax guide,
suggests that in addition to
making a list of the items,
take a photograph. You can store
a digital image on your computer
with the list, she notes, and
it will be handy if a tax examiner
asks about the donation.
If you miss the December donation deadline, don't worry. The charitable contribution deduction rules will still be around for 2007. But effective Jan. 1, 2007, so will another new requirement that you get receipts for all your gifts, regardless of how small. Previously, such documentation was required only if you gave $250 or more to a charity.
You don't have to turn in the receipts when you file your return, but you will need them if the IRS asks questions. Start 2007 with a new file for charitable gift acknowledgements so you won't have to worry about tracking down the information if the need arises.
Rely on good records
Because of the new requirements,
this might be the year to set
up a systematic record-keeping
It doesn't have to be elaborate. In fact, for many people the simpler the better. An accordion file folder for receipts and investment statements or a filing cabinet drawer if you have a lot of areas to track will work fine.
Computer-based tax filing programs also help many taxpayers keep track of the records they need year after year. The added bonus of these systems is that you don't have to worry about all the loose tax papers.
The key is to set up a system that you'll maintain. Any record tracking method is worthless if you don't use it. But one that you use will definitely help you implement your tax saving strategy and cash in on it at filing time.
Freelance writer Kay Bell writes Bankrate's tax stories. She blogs daily at Don't Mess with Taxes from her home in Austin, Texas.