With Christmas over and the end of year almost here, it's the perfect time to start thinking about your taxes. Use these tips now so you can save on your tax return in April.
Because of escalating gas and energy prices, the federal government is giving tax breaks to encourage people to conserve energy.
Specifically, if you do things to make your house more energy efficient -- from installing new windows to buying new appliances -- you get a break on your return. Taxpayers can deduct as much as 10 percent of $5,000.
Additionally, if you buy a hybrid car you can get a tax benefit of up to $2,600.
Pay Your Mortgage One Day Early
Most people pay their mortgage in the first few days of the month. If you make your January mortgage payment one day earlier on Dec. 31 instead of Jan. 1, you can save money on your 2006 tax bill.
This is how it works. Let's say you have a home worth $150,000; you have a 6 percent interest rate and your mortgage payment every month is $750. By paying your mortgage one day early on Dec. 31, you will get a $187 tax interest deduction on your return.
Put More in Your 401k
401k money is pre-tax savings. This is really important because there are two tax benefits to 401k plans.
First, saving for retirement is always a good thing. At the same time, you are lowering your tax bill; whatever money you put in your 401k account doesn't count against your earned income. The more money you put away, the less your return will be.
An individual can contribute up to $15,000 to a 401k per year. If you're over 50, the "catch up" provision allows you to put in $20,000 per year.
Any extra money you can put in your 401k in December will go a long way in terms of helping you with your retirement, as well as lowering your tax obligation.
There were $92 million worth of unclaimed tax returns and refunds sent out this year because they either got lost in the mail or people moved. That $92 million belongs to about 95,000 people in the United States. The average person is owed about $1,000.
If you are one of those people who didn't get the refund that you think you deserve, call the IRS. You only have until Dec. 31 to claim the money.
Start Working on Your Return Now
Start to gather the paperwork you need for your return. Although the holiday season can be hectic, in most people's lives, the last couple of weeks of the year are really slow at work. You can use this time to get some paper work done.
The IRS will let you start filing your taxes as early as mid-January. The faster you file, the faster you will get your refund.
Mellody Hobson, president of Ariel Capital Management in Chicago (www.arielmutualfunds.com) is "Good Morning America's" personal finance expert.
Copyright © 2006 ABC News Internet Ventures