Business & Finance :: February/March 2007
Preparing for Tax Season
With the new year comes tax season for most people. Here are some things to think about as you gather and prepare your documentation.
Should You Itemize?
Whether to itemize deductions on your tax return depends on how much you spent on certain expenses last year. Money paid for medical care, mortgage interest, taxes, charitable contributions, casualty losses, and miscellaneous deductions can reduce your taxes. If the total amount spent on those categories is more than the standard deduction, you can usually benefit by itemizing.
The standard deduction amounts are based on your filing status and are subject to inflation adjustments each year. For 2006, they are:
- Single $5,150
- Married Filing Jointly $10,300
- Head of Household $7,550
- Married Filing Separately $5,150
Some taxpayers have different standard deductions. The standard deduction is more for taxpayers age 65 or older and for those who are blind. It is generally less for those who can be claimed as a dependent on some other taxpayer's return.
Limited itemized deductions. Your itemized deductions may be limited if your adjusted gross income is more than $150,500 or $75,250 for Married Filing Separately. This limit applies to all itemized deductions except medical and dental expenses, casualty and theft losses, gambling losses, and investment interest.
Stipulations for Married Filing Separately. When a married couple files separate returns and one spouse itemizes deductions, the other spouse must also itemize and cannot claim the standard deduction.
Some taxpayers are not eligible for the standard deduction. They include nonresident aliens, dual-status aliens, and individuals who file returns for periods of less than 12 months.
Forms to use. To itemize your deductions, use Form 1040, U.S. Individual Income Tax Return, and Schedule A, Itemized Deductions. Source: IRS Tax Tips Issue Number TT-2007-05
Residential Energy Credits
If you have made improvements to your home in 2006 that increase the energy efficiency of your home, you may be eligible to claim a credit. The maximum allow-ed is $500 (lifetime limitation). There are two different categories. Qualified energy efficient improvements include eligible building envelope components such as insulation, exterior windows, storm doors and windows, and metal roofs. Residential energy property includes certain types of heat pumps, water heaters, and air conditioners. Manufacturers may provide proof that these items meet the requirements necessary for the credit either at the time of purchase or via their internet site. To claim the credit use Form 5695. Source: National Association of Tax Professionals 2006 Famous 1040
This article is for informational purposes only and should not be considered tax advice. An overall analysis of each taxpayer's situation is necessary before advice can be provided.
Accounting For Your Business offers a full range of accounting, bookkeeping and tax services for small businesses and individuals. Contact us today to make sure you are prepared for the tax season at 302.892.4700 or visit us on the web at accoutingforyourbusiness.net.
Lisa Muldoon and Michele Rago are co-owners of Accounting For Your Business, members of the New Castle County Chamber of Commerce, the American Society of Women Accountants and the National Association of Tax Professionals, sisters, and former MBNA officers.
Accounting For Your Business is conveniently located just off Rt. 141 at 100 E. Market Street, Suite 1, Newport, DE 19804.
