Volume 8 Issue 2007

Another year is winding down, and that means taxpayers should be alert to any last minute steps they can take to reduce their federal income taxes. Here’s a brief list of opportunities you might have missed.

Energy credit.

Replace your old furnace with a new energy-efficient model and you could qualify for a tax credit of as much as $150. The credit is also available for various other energy-efficient improvements to your principal residence. (Amounts vary.) Unless Congress extends this credit, it won’t be available after 2007.

Charitable rollover.

Taxpayers who have reached age 70½ can make a tax-free rollover from their traditional individual retirement account (IRA) to a qualified charity. Up to $100,000 may be rolled over, and the rollover will be counted toward satisfying the taxpayer’s required minimum distribution (RMD) for the year. This is another tax break that won’t be available after 2007 unless it’s extended.

Tuition deduction.

Pay college tuition bills for yourself or your dependent this year and you might be able to claim a deduction for the expense on your tax return. The tuition deduction is capped at $4,000 or $2,000, depending on your income level, and it isn’t available if you have modified adjusted gross income exceeding $80,000 ($160,000 if married filing jointly). Absent a law change, this deduction isn’t on the books for next year.

Zero percent capital gains rate.

Turning things around, this is a tax opportunity you might want to wait for if you expect to be in a 15% or lower regular income-tax bracket next year. If you anticipate a long-term capital gain from the sale of stock or other securities, waiting to sell your investment until 2008 could save you taxes. From 2008 through 2010, the 5% capital gains rate available to those in the lowest tax brackets is replaced with a 0% rate. In other words, the gain will be tax free. But be careful. With stocks and other securities, there’s always the chance that your paper gain could disappear if you wait to sell your investment.

All of the tax provisions mentioned here have various requirements that you’ll need to meet to benefit from them. We can fill you in on the details if you are interested.