They're not making it easy. As the few weeks left for moves to trim your 2007 income tax evaporate, changes in what the feds allow can upset long-standing plans, while new record keeping can mean more paperwork. And some breaks may be expiring.
Here are some tax angles to keep in mind.
Green at home. Set to expire December 31 are tax credits of up to $500 for conserving energy at home. Each $1 of credit offsets $1 of tax and is given for upgrading such items as heating and cooling units, windows, and insulation. The credits vary by item, which should be certified by the maker as qualifying.
Green on the road. Gift-wrapping a hybrid car for yourself can pay off on your 2007 return, thanks to a tax credit of $250 to $3,000, based on the model.
But some popular models are no longer eligible because the credit is gradually reduced after a carmaker's overall hybrid sales top 60,000 units, and it eventually hits zero.
Credits for Toyota and Toyota-made Lexus hybrids are gone for sales after September 30. Only reduced credits will be available for Honda hybrids starting next year.
Help for teachers. Teachers who dig into their own pockets for classroom supplies in the next few weeks can get a 2007 tax deduction of up to $250, even if they don't claim itemized deductions. Unlike a credit, a deduction doesn't directly cut tax; it reduces the income upon which tax is calculated.
Procrastinator's delight. Stashing money in a tax-deductible retirement account for which you qualify—such as a traditional IRA, or a SEP or Keogh for the self-employed—can save big bucks. If you're strapped, you have until next April 15 to contribute to an IRA and count it as a 2007 deduction. Self-employed people may have until then or even later.
You can put up to $4,000 into an IRA for 2007—or $5,000 after hitting age 50. A couple can do double that. Self-employed people can put as much as $45,000 or more in their plans. An alternative to a deductible retirement account, which bites when later withdrawals are taxed, is a Roth IRA. There's no deduction for contributions to a Roth, but withdrawals, including earnings on the account, are typically tax free. The contribution caps are the same as for a traditional IRA.
AMT blues. There's not much to do at this point to mitigate the alternative minimum tax if it will hit you. Congress has been making temporary patches to restrain the unintended expanding reach of that additional levy, but a permanent fix is elusive. Warning: If you're subject to AMT, don't try to boost deductions by accelerating payment of state and local tax. Those aren't deductible when figuring AMT.
Don't forget the state. The big deal in income tax is usually the federal bite, and much state income tax is based on first doing the federal calculations. But specific state rules may affect some strategies. Capital gains, for example, may not get special treatment, retirement income may be tax free, and deductions that the IRS permits may not be allowed. In Massachusetts, for example, there is no state deduction for IRA deposits. Accountant Arthur Ford in Tewksbury, Mass., says that makes it vital for residents there to keep good records since not all of their withdrawals will thus be subject to state tax.