"For small businesses that have been keeping records, it makes sense to go back, open up the storage box and find the exact amount," says Donna LeValley, New York City-based attorney and contributing editor to "J.K. Lasser's Your Income Tax 2007: For Preparing Your 2006 Tax Return." Most filers, though, will probably take the easy $30 to $60 prefigured credit.
2. Multiple direct deposit option
If the phone rebate bumps up your refund amount, the IRS is making it easier for you to save instead of spend that money. You can now have your tax refund divided and directly deposited into up to three accounts.
Simply decide how much you want to go into each account, be it one for checking, an IRA or even a health savings account, and include the account and bank routing numbers on Form 8888. There's no minimum deposit requirement. If you are getting back $100 and want to put $80 in your retirement plan, $15 in your medical account and $5 in checking, the IRS will follow your instructions.
Just make sure you correctly enter the account numbers on the form. William Perez, of Perez Tax Associates in San Francisco, says the multiple account and bank numbers could get confusing and a misplaced numeral could pose big refund trouble.
3. Energy-saving home improvements
If you replaced your home's drafty windows last year with new, energy-efficient panes, make sure you file the long Form 1040, along with Form 5695, to get the corresponding tax credit. That's just one way to take advantage of the
energy-efficient home improvement provisions included in the energy bill that took effect Jan. 1, 2006.
Simple upgrades, such as the new windows or added insulation, offer relatively small tax breaks. You can claim more generous credits if you added solar water, heat or power systems to your house. If you didn't get the improvements in by the Dec. 31 deadline to claim the credit this year, you get another chance by completing the work this year; a couple credits also carry over into 2008.
"What's great about the energy credits is that everybody can take them," says LeValley. "There are no income phaseouts. It's not about how much -- too little, too much -- you earn. It's about just making the right purchase."
4. Alternative fuel auto credit
Did your environmental concerns extend to the road? Then you might be able to drive away with substantial tax savings.
In 2006, the previous tax deduction for autos that run on alternative fuel was changed into a tax credit. In general, credits are better than deductions, since credits offer a dollar-for-dollar reduction of your tax bill. And a credit for buying an IRS-approved vehicle could cut as much as $4,000 from your tax bill.
However, if you waited until the latter part of 2006 to purchase a car, depending on which brand you bought, your tax credit might be cut in half. The exact credit amount is based on a
complicated formula involving the vehicle's fuel economy and its total expected lifetime fuel savings.
The good news is that the IRS is working with each auto manufacturer to certify vehicles and then let you know how much tax savings each offers. The bad news is that the credit is phased out based on total sales, meaning that the most popular hybrids will become less tax valuable over the coming months.
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That already has happened to Toyota's cars, whose credit amounts were cut in half on Oct. 1, 2006. For 2007 tax purposes, the Japanese automaker's credits will be reduced further on April 1.