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Don't Forget..

No way around the Alternative minimum tax (AMT). Because it is essentially a flat tax normal tax-planning advice can make you more vulnerable to the AMT. Accelerating deductions, like prepaying state and local income taxes, won't reduce your income for AMT. Don't shift deductions where they won't do any good.

Expenses qualifying/or dependent care credit liberalized. Now expenses eligible for the credit include - agency fees to locate/hire a care provider, room and board of care provider, tuition for specialty day camps, and transportation by the care provider to a care center, day camp, or after school program.

Don't lose your capital losses. Forgetting to carryover last year's losses is easily fixed by filing an amended return. But there is no recourse when violate the wash sale rule. The loss on a sale of securities can be disallowed under the wash-sale rule if you buy substantially identical securities within the 30 days before the date of sale and the 30 days after the date of sale.

What's new?

First the good news:

• Receive up to a $500 tax credit for residential energy improvements.
   
• A temporary increase in the AMT exemption should keep the AMT at bay for now.
   
• Rebate of improperly collect telephone taxes will give all filers a minimum $30 tax credit.

And the not so good news.

• Mid-year expansion of the kiddie tax means a bigger tax bills then expected.
• New restrictions on donations of tangible property and fractional interests in art.
• Tax credit for most popular hybrid cars is already phasing out.

Shifting income and deductions to impact your 1040.
Higher income in 2006? If you your income increase significantly in 2006, you may want to accelerate the payment of deductible expenses such as charitable contributions and subscriptions for professional/business journals and, if possible, defer income to 2007.

Lower income in 2006? If your tax bracket will be lower in 2006 than it will be in 2007, which might be the case if the cause of the decrease is unlikely to be repeated, deferring deductions to 2007 would be advisable. Assuming the expected increase in income would be enough to shift you to a higher bracket, any income you could accelerate to 2006 would be taxed at a lower rate, and deductions accelerated to 2007 would provide a greater tax reduction.

Get a head start in 2006 for 2007. Tax planning can start now with your W-2 not your 1040.
The first and often most overlooked place to begin is in the human resources department. There are a number of options that employers can offer that will help you pay for everyday expenses that are typically "difficult" to deduct or are not deductible at all. And in addition to not paying federal income on that set aside, that money also escapes the 7.65 in employment taxes.

Flexible spending accounts (FSA) can by used to both pay medical dependent care expenses. Both are typically funded through pre-tax payroll deductions.

Medical FSA. Medical expenses are a deductible, but only to the extent that they exceed 7.5 of adjusted gross income. A medical FSA can help you get around the 7.5 floor on and can be used to pay any medical expenses that would otherwise be deductible and co-payments and non-deductible expenses like over the counter medications.

Dependent care FSAs. A maximum of $5,000 can be deposited by an employee or funded by an employer and used toward the care of dependent. It could be a child, a parent, or dependent spouse.

Commuting expenses are typically nondeductible. An employee can exclude up to $105 a month for a transit pass or $205 for a parking pass if your company participates in a program that allows you to buy a transit pass or parking pass with pre-tax money.

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