At the eleventh hour, Congress has restored a few popular tax breaks. The problem is they were so late passing this legislation that the IRS has already begun printing returns and procedures for the 2006 tax season. So make sure you pass this on to anyone for whom these deductions might apply. Here are three major deductions that were just passed:
Tuition and Fee Deduction for Higher Education: This provision allows a parent to deduct a maximum of $4,000 of qualified tuition and related expenses from their income if they earn less than $65,000 as a single filer or head of household. For those filling jointly you can’t have a modified income greater than $130,000. For those earning more than these limits, you can deduct $2,000 if your income is less than $80,000 as a single or head of household filer or $160,000 as married filing jointly. If your modified adjusted income is above this level you do not qualify for this deduction. For more information regarding this new legislation go to this website http://www.house.gov/jct/x-50-06.pdf . This deduction will be available through 2007.
School Teacher Tax Deduction: This has been a very popular deduction that allows educators in primary and secondary schools to deduct up to $250 a year of out-of-pocket expenses for supplies and computer equipment. You do not have to itemize your deductions to get this tax break. So it is available if you take the standard deduction. This tax break is also good through 2007.
Sales Tax vs. State and Local Income Tax Deduction: If you itemize your deductions you can choose to deduct your state income and local taxes or sales tax depending on which is higher. In California, the State Income tax deduction is almost always the most advantageous. Some states have low income or no income taxes but high sales taxes such as Florida, Texas and Washington. If you live in a low income tax state you may want to deduct your actual sales taxes especially if you made a major purchase during the year like a car or boat.
Email this to a friend that might be able to use any of these tax breaks or else they might not hear about them.
A quick reminder, Altamont Capital Management offers tax preparation services at reasonable rates. Please let us know if we can prepare your taxes for you.
Libby Mihalka, CFA
The Financial Pragmatist
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