Preparing your IRS tax returns can be an expensive and troubling project without some sort of guide lines to follow, or an expert tax consulting service to help guide you through the annual, meticulous, process of preparing for your IRS tax return filings. As if this ever changing world was not difficult and confusing enough, Washington in the form of The Congress has reinstated, changed and added several important tax laws that should not go unnoticed or unmentioned for taxpayers of every walk in life. One of these popular reinstated tax breaks is directed towards the middle class, including a deduction of up to $4,000 for higher education tuition and fees. The provision, which expired at the end of 2005, was designed to help taxpayers whose incomes put them beyond the reach of the moderate and lower income families.
Lawmakers reinstated a deduction for state and local sales taxes that primarily benefits people living in states without an income tax. Also restored was a deduction of up to $250 for teachers' expenses. Congress also took something away from family pocketbooks last year, raising the age at which teens are subject to the new "kiddie" tax a phrase coined by politicizations, which is the tax on the child's investment income that must be figured at the parent's top rate, instead of the child's generally lower rate. Before, only those under 14 years old were subject to the higher tax, now those under 18 years of age are included. That change may consume earnings on certain college funds or saving programs started before the taxpayer friendly #529 college plans became widely available.
There's a bit of bad news for charity chasers and pack rats. This means taking a tax deduction for donating the depleting and deteriorating junk in your attic or basement and then giving it to charity. This will be harder to prove now under the changed laws. Household goods and clothing donated after Aug. 17, 2006, must be in "very good used condition" at the least to qualify. The deduction is available to taxpayers who itemize their tax returns and must have adequate documentation and reliable receipts.
What You Will Need:
Use a checklist as a simple reminder during this busy time of the year. Gather the most common records you will need in preparing for your 2006 tax return, whether you use a popular tax software, a professional tax preparer, or a paper tax return done through traditional mail.
- A Copy of 2005 tax return.
- W-2s from all employers.
- Identifying documents, such as a Social Security card or a driver license.
- Forms 1099, 1099-DIV, 1099-R and 1099-G showing dividends and interest paid to you in 2006 as well as any refund, credit, or off set of state and local taxes.
- Receipts indicating state and local taxes, real estate taxes and personal property taxes.
- Form 1098 for home mortgage interest and points.
- Receipts and documentation for charitable contributions and gifts for cash and non cash.
- Income receipts from any rental real estate, royalties, partnerships, S corporations and all if any taxable trusts and funded accounts.
- Records of unemployment compensation, Social Security benefits or other income.
- Records of medical and dental expenses if you think you can meet the 7.5 percent adjusted gross income threshold required for this deduction.
- Documentation of casualty and theft losses.
Note: Remember to keep a copy of your tax return and supporting documents for at least three years from the date you file the tax return.
Telephone users, energy saving homeowners and parents of older teens should pay special attention at tax time this year. Many changes affecting your 2006 tax returns are aimed specifically at you. Even if you do not have to file a 2006 tax return, you can get a refund on certain telephone taxes. You can claim a standard refund of $30 to $60 depending on the number of exemptions checked on your tax return, or the actual excise taxes paid for sevices billed from March 1, 2003, to July 31, 2006, if you have phone bills documenting the tax withholdings. Most taxpayers can claim a one time refund on federal excise taxes for long distance telephone service, whether for a land line, cell phone or Voice Over Internet Protocol.
The government stopped collecting the 3 percent tax since July 2006 after businesses repeatedly fought the tax law and won their cases. You do not have to itemize deductions to claim this refund. Even if you aren't required to file a tax return, perhaps your income was too low, you still can get the refund. There is a new form for this filing. Request a 1040 EZ-T for this purpose when filing your 2006 returns.
People who purchased hybrid or other alternative fuel vehicles can take a credit, though it's reduced if the manufacturer has sold 60,000 or more such vehicles. A list of vehicles and their credits is on the Internal Revenue Service Web Site at www.irs.gov.
