Ok, the mistletoe soon will be useless, the gifts will be torn open, and the parties will end. While you're at home this next week you can revel in the quiet (unless you manage to snag a Wii for the kids) and think about your taxes. That's right, your taxes. After all, you only have a few more days before you can prepare to make those last minute deductions for 2006.

But you can still rest somewhat easy, because your last-minute tax savings are about the same this year as they have been in previous years. Make sure that you've added the maximum amounts into your IRA if you have one, or into your child's savings accounts if those affect your taxes, and make your last charitable donations, etc.

The most radical tax law changes will occur in 2007 as you prepare your taxes or when you make money to pay those taxes. As I mentioned in the previous article, the gift tax exclusion will be raised from $11,000 to $12,000 annually. This is a great advantage to investors who want to contribute a bit more to a child's custodial account in 2007. But the gift tax exclusion is just the tip of the iceberg. Personal exemptions and standard deductions will rise, tax brackets will widen and income limits for IRAs will increase next year, thanks to inflation adjustments announced on 9 November by the Internal Revenue Service.

But you still might note the following, as some of these tax deduction changes could sneak up and slide right past you if you're not aware:

• If you own a land line phone and you've been paying a phone bill, make sure you don't overlook the "federal excise tax refund credit" that you can claim on line 71 of your form 1040. A similar line will be available if you file the short form 1040A. This is a one-time-only offer to claim old taxes that were assessed on your toll calls based on how far the call was being made and how much time you talked on that call. You can read more about how to figure this tax credit at the IRS.
  
  
• If you plan to give your attic contents away as a charitable contribution deduction, beware - if you made contributions after 17 August this year, no deduction is allowed for most contributions of clothing and household items unless the donated property is in good used condition or better. Additionally, you must support all cash contributions to any qualified charity with a dated bank record or a dated receipt after 17 August as well. Make this last practice a habit, as this law is now part of life, like breathing.
  
  
• If you don't itemize your tax deductions, you're in for a treat. The standard deduction for taxpayers who do not itemize deductions on Schedule A of Form 1040 is, in most cases, higher for 2006 than it was for 2005. The amount depends on your filing status, whether you are 65 or older or blind, and whether another taxpayer can claim an exemption for you. You can learn more about these deduction rates at the posted 2006 Federal Tax Rate Schedules.
  
  
• If you're hybrid vehicle fan, the list of vehicles that are qualified hybrid vehicles for the Alternative Motor Vehicle Credit has been expanded. The tax credit for hybrid vehicles applies for vehicles purchased on or after January 1, 2006, and could be as much as $3,400 for those who purchase the most fuel-efficient vehicles. See the news article, Summary of the Credit for Qualified Hybrid Vehicles, for more information.
  
  
• Beginning in 2007, a new refund option is available for filers of Form 1040, Form 1040A, Form 1040EZ, Form 1040NR, Form 1040NR-EZ, Form 1040-PR, and Form 1040-SS. Filers of these tax forms for 2006 will be able to elect to have their federal income tax refund automatically deposited into two or three accounts at a bank or other financial institutions. Individuals who elect to use this split refund option must file Form 8888, Direct Deposit of Refund to More Than One Account. Learn more about this option and view the draft Form 8888 at the IRS.

Now that you have the above information in your back pocket, you might think about how you reduce your tax payments for 2007. Plan ahead, and you might be able to save enough to add more dollars to your investment portfolio.

Take a look at the Tax Rate Schedules for 2007 and note any changes between this year and the Tax Rate Schedules for 2006. If you're single, for instance, you'll see that all tax levels have been expanded, but that you will also pay more taxes next year at all but the lowest level. So you might want to plan your deductions carefully next year to avoid heading into a higher tax bracket.

For instance, the Standard Deduction amount was increased for 2006, but it will increase again in 2007. If you, as that single person, deduct $5,150 for yourself for 2006, you'll be able to increase that amount to $5,350 next year. That $200 difference might seem like a drop in the bucket. But if you add that amount to several other deductions like business miles (an increase from 44.5 to 48.5 between 2006 and 2007) or Earned Income Credits, you might not face taxpayer shock come this time next year.

One thing hasn't changed - if you hold common stocks for one year or less, you'll pay more taxes on those capital gains that you would if you hold those stocks for more than one year. This is one time when you can always outwit the IRS - at least through 2007.

Have a safe and happy New Year!

Until Next Week,
Linda Goin