With one week till the end of the year, I would like to offer a few last minute tips in order to save on your 2006 Individual Income Tax Return.
1) Pay as much as possible as a charitable donation -- If you are Mormon this means paying your tithing in full before Dec. 31st. If you are not Mormon and living in Utah, take advantage of the situation by donating as much as ten percent to a charity of your choice. The culture in Utah offers an opportunity to donate a higher percentage of your income without increased audit risk as opposed to other parts of our nation.
2.) Pay future deductible expenses before Dec. 31st -- prep state income taxes, January's mortgage, and tithing. By doing so you can deduct expenses now that would be incurred in 2007. There is an AMT trap regarding early payments of state income taxes, and paying January's mortgage early. Consult a competent tax consultant.
3) Business owners should make inventory/equipment purchases before Jan. 1 -- Making such purchases before January 1 offers a wider variety of alternatives to lower taxable ordinary income, including the use of the accelerated depreciation deduction.
4) By a Hybrid/Qualifying energy efficient vehicle -- hybrid still offer great Federal breaks to business owners and individuals. There is no longer a tax credit for the purchase of a Toyota Prius (credits were limited to the first several thousand vehicles sold).
No strategy is right for all taxpayers consult a competent professional on whether any of these tax strategies are right for you. Competent tax advise can keep the tax tail from waging the economic dog in your finances.