By Now You have your W-2s and 1099s from last year. So you're all set to prepare your 2006 return, right? Not so fast. Some new provisions are in place this time around, and it's important that you be familiar with them in order to take advantage of all your rightful tax breaks.

Don't Forget to Claim the Phone Tax Credit

To get even, you can claim a one-time refundable tax return credit for the actual amount of wrongfully paid phone taxes on long distance charges that were billed after Feb. 28, 2003, and before Aug. 1, 2006. However, this requires combing through 41 months worth of phone bills to figure out the exact amount of wrongfully paid taxes and filing Form 8913 with your 2006 Form 1040. Chances are you've got better things to do with your time. Alternatively, you can take the easy way out and claim a standard credit figure instead. If you chose the simpler option, no documentation is required. The IRS will automatically grant you the credit with almost no questions asked. (You must state that you paid some wrongfully charged long distance phone taxes during at least part of the 41-month period mentioned above.) The standard credits are as follows:

Tax Return Tip: Enter the credit amount on line 71 of Form 1040. Done. Now, if your 2006 income was not high enough to require filing Form 1040, you can file new Form 1040EZ-T. It was invented for the sole purpose of allowing you to collect your rightful phone tax credit even though you owe no federal income tax for 2006. This is easy!

Two New Residential Energy Credits Make Their Debut

Credit for "Residential Energy Improvements": This credit has a rather ungenerous $500 lifetime limit, and it only applies to expenditures for your main residence (vacation homes don't count). The credit equals the sum of 10% of your expenditures for the items from behind Door Number 1 plus 100% of expenditures for the items from behind Door Number 2.

Door Number 1 Items

Door Number 2 Items

Another Credit for "Residential Energy Equipment"
Confusingly enough, you can also collect a completely separate tax credit equal to 30% of your expenditures for these other energy-saving items.

Tax Return Tip: Fill out Form 5695 (Residential Energy Credits) to calculate both of these credits. Claim them on line 52 on page 2 of your Form 1040.

Filing Form 4868 to request an automatic six-month extension (to Oct. 15, 2007) to file your 2006 Form 1040.

 

Handing over the unpaid balance of your 2006 income tax bill in order to avoid the 0.5% per month failure-to-pay penalty.

Contributing to a traditional or Roth IRA for the 2006 tax year.

Paying your first quarter estimated tax obligation for the 2007 tax year.

Don't Forget to Claim the Phone Tax Credit

Last year, the IRS admitted it should not have been collecting the 3% federal telephone excise tax on most long distance phone charges. Specifically, the tax should not have been assessed on long distance calls that are billed based on elapsed time or on charges for "bundled services" where local and long distance services are combined under a plan that does not charge separately for local services.

To get even, you can claim a one-time refundable tax return credit for the actual amount of wrongfully paid phone taxes on long distance charges that were billed after Feb. 28, 2003, and before Aug. 1, 2006. However, this requires combing through 41 months worth of phone bills to figure out the exact amount of wrongfully paid taxes and filing Form 8913 with your 2006 Form 1040. Chances are you've got better things to do with your time. Alternatively, you can take the easy way out and claim a standard credit figure instead. If you chose the simpler option, no documentation is required. The IRS will automatically grant you the credit with almost no questions asked. (You must state that you paid some wrongfully charged long distance phone taxes during at least part of the 41-month period mentioned above.) The standard credits are as follows:

$30 if your 2006 Form 1040 shows one personal exemption.
$40 for two exemptions.
$50 for three exemptions.
$60 for four or more exemptions.

Tax Return Tip: Enter the credit amount on line 71 of Form 1040. Done. Now, if your 2006 income was not high enough to require filing Form 1040, you can file new Form 1040EZ-T. It was invented for the sole purpose of allowing you to collect your rightful phone tax credit even though you owe no federal income tax for 2006. This is easy!

Two New Residential Energy Credits Make Their Debut

Your 2006 return is your first chance to claim two new tax credits for energy-saving expenditures for your home. Here's the scoop.

Credit for "Residential Energy Improvements": This credit has a rather ungenerous $500 lifetime limit, and it only applies to expenditures for your main residence (vacation homes don't count). The credit equals the sum of 10% of your expenditures for the items from behind Door Number 1 plus 100% of expenditures for the items from behind Door Number 2.

Door Number 1 Items

Metal roofs coated with heat-reduction pigments.

 

Exterior doors.

Exterior windows including skylights (the lifetime credit for windows is limited to $200).

Insulation materials designed to reduce heat loss or gain.

Door Number 2 Items

Qualified electric heat pumps, electric heat pump water heaters, geothermal heat pumps, and central air conditioners. The credit for these cannot exceed $300.

 

Qualified natural gas, propane, and oil furnaces and qualified hot-water boilers. The credit for these cannot exceed $150.

Advanced main air circulating fans. The credit for these cannot exceed $50.

Another Credit for "Residential Energy Equipment"
Confusingly enough, you can also collect a completely separate tax credit equal to 30% of your expenditures for these other energy-saving items.

Qualified solar water-heating equipment (maximum credit of $2,000).

 

Qualified electricity generating solar photo-voltaic equipment (maximum credit of $2,000).

Qualified fuel-cell equipment (maximum credit of $1,000 for each kilowatt of capacity).

You cannot claim this credit for a residence that's not in the U.S. or for equipment to heat a swimming pool or hot tub. The credit for fuel-cell property is only available for your main residence.

Tax Return Tip: Fill out Form 5695 (Residential Energy Credits) to calculate both of these credits. Claim them on line 52 on page 2 of your Form 1040.

Deduction for Higher Education Tuition Reinstated

The TRHCA retroactively reinstated the deduction for qualified higher education tuition and related fees for 2006 (and extended the break through 2007). This break is a so-called above-the-line write-off, which means you need not itemize to benefit. Married joint filers can deduct up to $4,000 of qualified education expenses if modified adjusted gross income (MAGI) for 2006 was $80,000 or less. If you're unmarried, you can deduct up to $4,000 if your MAGI was $65,000 or less. Don't give up hope if you exceeded those thresholds. Married joint filers with MAGI between $130,001 and $160,000 can claim a reduced deduction of up to $2,000. Ditto for unmarried folks with MAGI between $65,001 and $80,000.

Tax Return Tip: Once again, you must follow a special drill to claim your rightful 2006 write-off. Enter the tuition deduction amount on line 35 on page 1 of your Form 1040. This line is normally used to claim the domestic production activities deduction, which you've probably never heard of. No matter. Enter "T" on the dotted line to the left of line 35 to indicate you're claiming the tuition deduction instead of the other one.

Deduction for Educator Expenses Reinstated

The TRHCA also retroactively reinstated the above-the-line deduction for up to $250 of out-of-pocket expenses paid by K-12 teachers and educators for 2006 (and extended the break through 2007).

Tax Return Tip: Claim the deduction on line 23 on page 1 of Form 1040. This line is normally used to report Archer MSA contributions, which are rare these days. Enter "E" on the dotted line to the left of line 23 to indicate you're claiming the educator deduction. If you are among the few who will claim both write-offs, enter "B" to the left of line 23 and attach a statement that shows the amount of each one.

---