Scott On Money

The deadline for filing your 2006 taxes is only three weeks away. If you have to file anything more complex than a 1040EZ you probably need to get cracking. If you are trying to do your taxes at the last minute your liable to miss deductions or make costly mistakes.

The IRS will give you an extension to file if you submit form 4868. You’ll have to check with your state for details on your state taxes.

Realize that the extension is an extension to file, not to pay. If you haven’t paid everything you’re likely to owe get that in as soon as possible. The longer you wait the higher your potential liability for interest and fines.

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Wait scratch that.

According to MSN California is ranked 15th among the 50 states for state and local taxes. Not something to get all giddy about. I was truly shocked that the situation is actually worse for 14 other states. Property Taxes here are brutal. So are income taxes. Come to think of it our sales tax is outrageous. Wait, I almost forgot our gas tax is insanely high. Oh well.

Congratulations Maine and New York. I hope you are happy with how the government spends your money.

Take a look at where your state ranks. You might just consider giving yourself a tax break by heading north. If you move to New Hampshire, Delaware or Alaska you just might get a double bonus. If global warming would just really kick in the climate should be much better in all three states!

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If you watch your mutual funds closely this time of year you might end up with a sinking feeling in your stomach. You might see your mutual funds share price drop precipitously. Last week I had one hit me with a 15% drop.

Why do mutual funds do this? The tax man makes them. The fund has to make distributions to account for the capital gains and dividend income it receives. As with most things governmental it is far from fair. If you buy a fund and it has a distribution the next day you get to pay the tax bill for the last year.

Before you buy a mutual fund check with the fund or your broker on when the distribution date is. If it is within the next month or two consider waiting until after the distribution to invest.

Of course if you do all of this in your tax deferred accounts it will not make a bit of difference.

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Check out the most recent Tax Carnival. You can read some great tips there. Taxes are important right now because you still have many options to reduce your taxes that you need to act on now.

Also check out:
Simple Ways to Save on Your Taxes
2006 401K Contribution Limits
2006 IRA Contribution Limits
2006 SEP IRA Contributions Limits
Make Your Donations Now

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The end of the year is almost here and it is time to make your donations to charity. As you can surmise from the news today the bad weather can drive a tremendous need for charities to step in and help those in need.

Take the time to make your donations to charities that match your philosophy and address issues you are concerned with.

It is important as you do this to remember to get documentation of your gifts to get the tax deduction that you are entitled to.

For cash donations make sure you get a receipt.

For other donations I get a receipt but I also take a picture of the items. This helps in valuing the items and my memory.

Take some time these holidays to think of others!

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The maximum contribution limit for both traditional and Roth IRAs in 2006 is $4000. Of course with the IRS there are always exceptions. You can’t exceed your income. You can contribute and extra $1000 dollars if your over 50 (not all the exceptions are bad!).

A lot of people are precluded from using IRAs because of there “high” incomes. If you have an income over $50,000 a year or you already have a retirement plan from work check out the more detailed limits and phase outs that apply in these cases.

Find out how much you can contribute and make very effort to get this money put away to save a tremendous amount of tax expense.

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The 2006 SEP IRA contribution limit is $44,000. Of course this is further limited to 25% of an individual’s 2006 compensation. Another key restriction for you lucky folks is that only the first $220,000 dollars of compensation can be counted. You can read more from our friends at the IRS.

For those of you that don’t know a SEP IRA is a retirement plan that costs much less in administrative fees than a 401k. For this reason many small businesses choose to use them.

If you managed to set aside $44,000 towards your retirement this year I extend to you a big wooo-whooo. Congratulations. For those of you that didn’t take heart in the little steps, consistent progress leads to huge results!

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In 2006 you can contribute up to $15,000 to your 401k. Be careful as all the usual government caveats and restrictions apply.

One additional note for those of you in the age fifty and older club is that you may be eligible to contribute and extra $5,000 as a catch up contribution.

As the tax year comes to an end make sure you are at least taking advantage of your employer match. If you managed to max out your 401k then congratulations, that was hard but fruitful work. Taxes are the biggest expense for most people, setting aside $15,000 tax free is a phenomenal accomplishment.

For more details checlk out the IRS site.

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- Get a file folder.
- Write Taxes and the year on it.
- Keep the folder where you read your mail and pay your bills.
- Every time you get a piece of paper that could be conceivably tax related stuff it in the folder.

Why is this so important?

We Forget
The donation we gave to the Boys and Girls club. The car tax we had to pay. The medical bill that insurance didn’t cover. There is no guarantee that everything you put in the folder will help you on your taxes, but if you don’t remember you will not get the deduction.

Finding Documentation Takes Time
One of the most grueling tasks associated with doing taxes is gathering the documentation to put your taxes together. This is true whether you do your taxes or hand them off to someone else. Your time is valuable, and simply stuffing your documentation for taxes in one place drastically reduces the tax time paper hunt.

Some of you are very organized. You have a sophisticated filing system and you instantly know exactly where everything is. Obviously this entry doesn’t apply to those of you so lucky and disciplined. Everyone else should go get that folder now!

How does this save me anything?

It saves money by making sure that you take advantage of all the deductions you are entitled to. It saves time by eliminating the paper hunt.

Go get that folder and save some time and money for your next go around with the tax man.

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Don't Mess with Taxes has a great article on new tax benefits for our service people.

If you know someone serving in our military send it along to them.

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