Last-minute tax tips for year-end deductions
Carol Brimm
As 2007 quickly approaches time is running short to take advantage of tax deductions for 2006. Ray Young, who recently stepped down as Oklahoma State Representative for District 43 and purchased Linda McColl’s CPA practice in Mustang, says reviewing some of the general mechanics that go into timing a tax deduction or credit can help most taxpayers before year end.
Charitable Contributions – Charitable contributions pledged in 2006 but not paid until 2007 cannot be deducted until the year the contribution is actually paid. All contributions must be made by Dec. 31, 2006 to be eligible for 2006 deductions. However, a contribution made by credit or debit card is considered paid when the charge to your credit card is made or the sale with the debit card is completed, even if the funds are not deducted from your bank until Jan. 2, 2007. Contributions made by check are considered paid when your check is tendered in the transaction. If you are paying by mail it is considered made when it is mailed, but if the check “bounces,” the expense is considered to have never been paid. Young says it is important to know if the organization you are contributing to is a registered 501C3 charity. Little league sports teams or other youth activities are often not registered 501C3 charities and may not be tax deductible. If more than $250 is given to one organization or the total contributions equal more than $500 the deduction must be substantiated with receipts. Restrictions have tightened on deductions for cars donated to charitable organizations. According to Young the deduction is limited to the amount the organization receives in the sale of the car. If you donate a car in 2006 but the car is not sold until later by the organization you must take the deduction for the year in which the car is sold.
IRA’s – A change in tax law for 2006 affects those 70 ½ or older. This year those over 70 ½ can contribute up to $100,000 from an IRA to a charitable organization without being assessed a tax penalty but they cannot deduct the contribution. Young says now is a good time to consider contributing to an individual retirement account. Individuals who do not have a 401K with their employer can contribute $4,500 catch up contributions this year.
Deductions – According to Young, many allowable deductions have increased this year. The deduction for moving expenses has increased to .18 cents; standard deductions have increased to $5,150 for single filers, $10,300 for joint and $7,550 for head of household. Standard exemptions have increased to $3,300 per individual. Full time college students up to age 24 should be claimed on their parents’ taxes if the parents supply 50 percent of the student’s support. A residential energy credit is available this year on form 5695 for some energy efficient home improvements. Federal excise taxes on phone bills can be taken as a credit on form 8913. The standard mileage deduction has increased to .44 ½ cents per mile. Young says the FICA ceiling has been raised to $94,200 for those who are self employed but there is still no ceiling on Medicare. One half of health insurance cost are also deductible for the self employed.
Get ready – Young says individuals should go through their check register now and highlight anything that could be a tax deduction. He said a receipt is now preferred in addition to a copy of the check as the IRS doesn’t necessarily accept cancelled checks as proof. He suggest making a list and compiling receipts for charitable contributions (including church giving statements), medical expenses paid which total more than 7 ½ percent of the adjusted gross income, property taxes paid and mortgage interest paid (form 1098), college tuition statements, brokerage statements for sale of investment vehicles, and gathering W-2’s from each employer, Interest, Dividend and Miscellaneous 1099s, 1099Gs for gambling winnings, and 1099Rs for retirement income. For those with a home office, it is also important to gather copies of utility bills, telephone, internet and cable bills if applicable to business, and all receipts for necessary and regular cost of doing business.
Filing – Young strongly recommends electronic filing and electronic refunds. He says individuals with simple returns and a basic understanding of tax law could use computer tax software, however if a tax preparer is used he believes it is important to deal with a tax professional CPA rather than an unlicensed practitioner.
More information can be obtained at www.rayyoungcpa.com or calling 376-0001.
Carol Brimm
As 2007 quickly approaches time is running short to take advantage of tax deductions for 2006. Ray Young, who recently stepped down as Oklahoma State Representative for District 43 and purchased Linda McColl’s CPA practice in Mustang, says reviewing some of the general mechanics that go into timing a tax deduction or credit can help most taxpayers before year end.
Charitable Contributions – Charitable contributions pledged in 2006 but not paid until 2007 cannot be deducted until the year the contribution is actually paid. All contributions must be made by Dec. 31, 2006 to be eligible for 2006 deductions. However, a contribution made by credit or debit card is considered paid when the charge to your credit card is made or the sale with the debit card is completed, even if the funds are not deducted from your bank until Jan. 2, 2007. Contributions made by check are considered paid when your check is tendered in the transaction. If you are paying by mail it is considered made when it is mailed, but if the check “bounces,” the expense is considered to have never been paid. Young says it is important to know if the organization you are contributing to is a registered 501C3 charity. Little league sports teams or other youth activities are often not registered 501C3 charities and may not be tax deductible. If more than $250 is given to one organization or the total contributions equal more than $500 the deduction must be substantiated with receipts. Restrictions have tightened on deductions for cars donated to charitable organizations. According to Young the deduction is limited to the amount the organization receives in the sale of the car. If you donate a car in 2006 but the car is not sold until later by the organization you must take the deduction for the year in which the car is sold.
IRA’s – A change in tax law for 2006 affects those 70 ½ or older. This year those over 70 ½ can contribute up to $100,000 from an IRA to a charitable organization without being assessed a tax penalty but they cannot deduct the contribution. Young says now is a good time to consider contributing to an individual retirement account. Individuals who do not have a 401K with their employer can contribute $4,500 catch up contributions this year.
Deductions – According to Young, many allowable deductions have increased this year. The deduction for moving expenses has increased to .18 cents; standard deductions have increased to $5,150 for single filers, $10,300 for joint and $7,550 for head of household. Standard exemptions have increased to $3,300 per individual. Full time college students up to age 24 should be claimed on their parents’ taxes if the parents supply 50 percent of the student’s support. A residential energy credit is available this year on form 5695 for some energy efficient home improvements. Federal excise taxes on phone bills can be taken as a credit on form 8913. The standard mileage deduction has increased to .44 ½ cents per mile. Young says the FICA ceiling has been raised to $94,200 for those who are self employed but there is still no ceiling on Medicare. One half of health insurance cost are also deductible for the self employed.
Get ready – Young says individuals should go through their check register now and highlight anything that could be a tax deduction. He said a receipt is now preferred in addition to a copy of the check as the IRS doesn’t necessarily accept cancelled checks as proof. He suggest making a list and compiling receipts for charitable contributions (including church giving statements), medical expenses paid which total more than 7 ½ percent of the adjusted gross income, property taxes paid and mortgage interest paid (form 1098), college tuition statements, brokerage statements for sale of investment vehicles, and gathering W-2’s from each employer, Interest, Dividend and Miscellaneous 1099s, 1099Gs for gambling winnings, and 1099Rs for retirement income. For those with a home office, it is also important to gather copies of utility bills, telephone, internet and cable bills if applicable to business, and all receipts for necessary and regular cost of doing business.
Filing – Young strongly recommends electronic filing and electronic refunds. He says individuals with simple returns and a basic understanding of tax law could use computer tax software, however if a tax preparer is used he believes it is important to deal with a tax professional CPA rather than an unlicensed practitioner.
More information can be obtained at www.rayyoungcpa.com or calling 376-0001.
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