2006 Tax Tips

There's precious little time left in the 2006 tax year for people to lock in breaks they can claim when April 15 rolls around. The Washington Post's Kathleen Day developed the following list of 10 ways people can save on their tax bills by interviewing a dozen financial planners and government tax experts, who cited these are some of the most significant breaks this year.

Note These Breaks Now This tax year, people can save in a variety of ways -- by giving financial gifts, selling mutual fund shares at the right time or putting aside money for college -- provided they act by Dec. 31. Donating From an IRA Clothes or household items donated after Aug. 17 have to be in "good used condition" or better to be claimed as a deduction. Apparently the federal government does not want people to get a tax break for throwing out trash. One exception is for items that may be in less-than-good condition but have been appraised at $500 or more. 'Kiddie Tax' Changes A change in how a child's interest, dividends or other unearned income is treated makes it prudent to think of switching the assets producing that income into a tax-advantaged 529 college savings plan. Congress made the 529 permanent this year; it was set to expire in 2010. Efficient Home In 2006, people who make energy-saving improvements to their home can claim tax credits from $50 to $4,000, as long as the work is on their primary residence and it's in the United States. Giving Sooner In 2006, people who make energy-saving improvements to their home can claim tax credits from $50 to $4,000, as long as the work is on their primary residence and it's in the United States. How Big a Credit? Individuals can get a tax credit for buying a new hybrid car or truck. The credit ranges from $250 to several thousand dollars, depending on the make and model of the vehicle and when you bought it.

Live Q&A Washington Post staff writer Kathleen Day hosted a discussion on things you can do now to prepre for the tax season. 'Harvesting' Can Offset Gain Taxpayers should consider selling money-losing investments to produce losses that can offset gains on other investments. Financial planners call this harvesting and say anyone can advantage of it, even those with small investment portfolios. No Early Withdrawal Penalty Members of the military called to active duty any time since Sept. 11, 2001, and through Dec. 31, 2007, who serve for six months or more can take out money from IRAs, 401(k)s or other personal retirement plans without incurring the 10 percent early-withdrawal penalty that's usual in such cases. Divided Payouts Anyone with a mutual fund that's not part of a retirement account and that's been held for a year or more should consider selling it before the fund distributes year-end dividends. Long Distance Pays Taxpayers can claim a refund of up to $60 on their 2006 federal taxes with no questions asked as the government attempts to return $8 billion in long-distance telephone taxes that courts have ruled should not have been collected. Opening the Account Taxpayers can claim a refund of up to $60 on their 2006 federal taxes with no questions asked as the government attempts to return $8 billion in long-distance telephone taxes that courts have ruled should not have been collected.