You now have a choice of deducting either your state and local income taxes or state and local sales taxes, but not both.
Here are some last-minute tips that will help you to reduce your personal tax bill for 2006.
Save more for retirement
If you haven't done so, max out your retirement savings now by bringing your contribution up to the legal limit. For 2006, you may put as much as $15,000 into a 401(k), 403(b) or 457 plan. If you're over age 50, you may add an additional $5,000.
Every dollar you contribute means you will pay less income tax. Except for the new Roth IRA, all contributions to tax-deferred retirement plans are tax-deductible in the tax year they are contributed.
This is "found" money. Whatever you do, don't walk away from it. If you're not in a position to contribute the legal maximum, bump up your contribution as much as possible. You'll be surprised how this can add up over time.
You must make your contributions no later than the time you file your return. Note: You may make deposits for 2006 only in accounts that you opened prior to Dec. 31, 2006.
Don't forget sales taxes
Did you make any large purchases in 2006?
Under a recent change in the tax law, you now have a choice of deducting either your state and local income taxes or state and local sales taxes, but not both.
If you live in a high-tax state such as Ohio or Massachusetts, you may be better off continuing to take the deduction for state income and property taxes. However, for residents of states such as Florida and Texas that have no separate income tax, the sales tax deduction can significantly reduce federal taxable income.
Can't find your sales receipts? Not to worry. The IRS provides tables that allow you to estimate, based on your gross income, how much in state sales tax you probably paid. You'll find the tables on the IRS Web site:
Have kids in college?
If you're dishing out big bucks for college tuition, you might be able to get some of those bucks back.
There are two education credits and a tuition deduction for which you may be eligible.
The Hope Scholarship Credit is for taxpayers whose children (or themselves) are in their freshman or sophomore years in college. It offers a maximum tax credit of up to $1,500. The Lifetime Learning Credit offers the possibility of a credit of up to 20 percent of the first $10,000 in tuition you pay, for a maximum credit of $2,000.
If your income is too high to qualify for either the Hope or Lifetime credits, you may be eligible to take a tuition deduction.
Details and earnings limitations on education deductions and credits are complex so, if you have children in college, you should check with your tax adviser to see if you are eligible.
And don't forget the $1,000 Child Tax Credit, originally scheduled to drop to $700 in 2005. It's now been extended through 2010.