April 17 has come and gone, and you've probably had enough of tax season.
But don't put those tax files away just yet. Now's the time to begin planning for your 2007 tax return.
If year after year you're getting $2,000 or more in refunds, you need to change the withholding allowances on your W-4 form, one expert said.
If you receive a salary, you can decrease the amount of taxes withheld from your pay by changing the number of allowances on your W-4 form.
The allowances are based on the itemized tax deductions you can take. The number of allowances may be different from the number of exemptions you claim on your tax return.
Higher-income taxpayers also should examine their potential exposure to the alternative minimum tax for 2007, recommends John Nersesian, managing director of Nuveen Investments based in Chicago.
The AMT was introduced to make sure that high-income earners didn't use tax shelters to pay little or no income tax.
Nersesian says to pay attention to 2007 changes because the AMT exemption for married couples filing jointly will be $45,000 this year, down from $62,550 in 2006. For single individuals, it's $33,750 from $42,500 in 2006. The decreases will result in more people being forced to pay AMT for this tax year, he said.
Nersesian said if you do fall under the AMT, you need to do some things differently than what typically might be advised. For example, instead of taking a deduction in 2007, you might want to take it next year if you think you won't fall under the AMT. If you're an investor and suspect you might be subject to the AMT this year, consider investing in certain municipal bonds, Nersesian suggested. The interest on "public purpose" municipal bonds used to finance capital projects for state and local governments is not subject to the AMT.
However, if you are hit by the AMT, you might want to avoid investing in private purpose bonds, he said.
The interest earned on those bonds - used to build sports stadiums, for example - is tax-free unless you fall under the AMT. Of course, you always want to weigh an investment's return versus the tax savings, he said.