Filing season tax minimization ideas.

• Author: Winton, Lisa A.

The AICPA has identified 10 ideas for minimizing taxes before April 16, 2007 (April 15, 2007 is a Sunday).

1. Claim all charitable deductions: Individuals should be sure to determine miles driven for charitable purposes, such as when driving children to a volunteer worksite. For 2006 returns, the charitable deduction rate is 14[cents] per mile. Also to be reported are any charitable contributions made through payroll deductions.

2. Claim all medical deductions: Mileage for medical purposes is deductible, similar to charitable miles, but at 18[cents] per mile or, if greeter, out-of-packet cost. Any premiums paid by Medicare for clients over age 64 should also be included.

3. Claim business mileage: The mileage allowance for business use of a vehicle is 44.5[cents] per mile for 2006. Most business use of vehicles probably costs more than this, at least in some metropolitan areas. For those accumulating significant mileage, computing actual cost versus the standard mileage rate might be worthwhile.

4. Be aware of minimum tax credit: Individuals owing alternative minimum tax are also likely generating a minimum tax credit to use against regular tax in the future. Be aware of the amount generated from prior years; such information should be included in any tax preparation software used, so it is net overlooked in future years.

5. Compare approaches: Tax preparation software makes it easy to determine optimal filing approaches (e.g., taking the standard deduction versus itemizing). Married couples should compute tax liability filing jointly and separately, to see which is more beneficial.

6. Know the rules for taxation of state income tax refunds: Historically, the tax benefit rule has caused a refund of state income taxes deducted in a prior year to be taxable to the extent that itemized deductions that year exceeded the standard deduction. However, revised IRS Pub. 525, Taxable and Nontaxable Income: Miscellaneous Income, states that the taxable amount is further limited to the excess of the state income tax deduction over the state and local general soles tax deduction that could have been claimed. For example, X deducted $10,000 in state income taxes on his 2005 return, because it was higher than the $9,000 sales taxes he paid that year. If X receives a $3,000 refund of state income taxes in 2006, the maximum amount taxable would be $1,000 ($10,000 income taxes $9,000 sales taxes), because X could hove deducted S9,000 in any event. Consequently...