Jewish World Review Jan. 9, 2007 / 19 Teves, 5767

Too busy for tax planning? It'll cost you

By Vicki Lee Parker

http://www.JewishWorldReview.com | (MCT) From January to April, most people will be so bogged down preparing their 2006 income tax returns that they will forget all about the 2007 tax year. That means putting off tax planning for at least half a year. That's not a good idea.

Keeping good records throughout the year can result in significant tax savings.

So how can you start your tax planning off right? I spoke with Roby B. Sawyers, a certified public accountant and business professor at North Carolina State University, and other tax experts for recommendations.

• Take a little time in January to decide what savings contributions and charitable donations you want to make during the year. Where possible, set up automatic deductions. Otherwise, plan to write checks or pay with a credit card to keep track of payments.

• Create a tax filing system. Suggested files: medical bills, personal property tax payments, donation receipts, stock purchases and sales, documents from the sale or purchase of a home, home equity loans, and home office expenses if you're self-employed, a contract worker or otherwise must work from your home.

• Prepare to itemize deductions. A recent government study found that as many as 2 million taxpayers might have overpaid their taxes because they didn't itemize when they could. To itemize, simply keep track of state and local taxes, mortgage interest, charitable contributions and medical expenses that weren't reimbursed.

• New for next year: You'll need canceled checks, receipts and credit card statements for all monetary donations, no matter how small. No more handing over $50 here and there and getting to claim it.

• Consider contributing to the state's 529 college plan. Individual filers who do can deduct up to $2,000; joint filers can deduct up to $4,000.

• Adjust 401(k) contributions to accommodate pay raises or bonuses. Take advantage of any catch-up contributions. People 50 or older can contribute up to $5,000 in an IRA account and $20,500 in a 401(k). Try to budget contributions over the year instead of paying one lump sum at the end of the year.

• Finally, if you fear that you might be snared by the alternative minimum tax, meet with a tax adviser, preferably after you file your 2006 return, to determine your best tax strategy.