Take action now to trim 2006 taxes

The end of the year will be here before you know it. That means you should put some tax planning on your agenda now. Here are some ideas you might consider to trim your 2006 taxes.

• Invest in dividend-paying stocks. Because of the favorable 5% and 15% tax rates on dividend in-come, holding stocks that pay dividends can reduce your taxes immediately. This might make such investments more attractive than interest-generating securities, such as bonds.
  
• Hold stocks long-term. Dividends aren't the only type of income given favorable tax treatment. Long-term capital gains are also taxed at a maximum 15% tax rate. So when you decide to sell stocks, bonds, or other investments, remember that meeting the 12-month holding period for long-term gains provides significant tax savings.
  
• Save for your retirement. Make sure to take advantage of the more liberal contribution limits to tax-deferred retirement accounts. By contributing to your employer-sponsored retirement plan, such as a 401(k), 403(b), or 457 plan, you'll reduce your taxable income, and you'll defer taxes on the account until you take future distributions. With the 2006 contribution limits raised to $15,000 for most plans, you could slash your tax bill simply by saving for the future. And don't forget: If you're age 50 or older in 2006, you can make an additional $5,000 “catch-up” retirement contribution.
  
• Make your home energy-efficient. New in 2006, you may claim a lifetime credit of up to $500 for making qualifying energy-saving improvements to your home. Qualifying expenditures include installation of certain energy-efficient insulation materials, exterior windows and doors, electric heat pumps, and central air conditioning.
  
• Go solar. Also new for 2006, you may claim a 30% credit (with certain dollar limits) for installing solar water-heating, photovoltaic, or fuel-cell equipment in your home. No credit is allowed for equipment used to heat a swimming pool or hot tub.
  
• Buy an energy-efficient car. A tax credit is available for a variety of alternative fuel vehicles. New hybrid vehicles are eligible for a tax credit of up to $3,400, depending on the vehicle's fuel-efficiency. However, this credit is limited to the first 60,000 vehicles sold this year per auto manufacturer.

These are just a few ideas that you should consider to cut your 2006 taxes. Contact our office for a review of tax-cutters to consider in your particular situation.