By now, you've probably heard that the new Tax Relief and Health Care Act of 2006 extends some valuable but temporary tax incentives. That's only part of the news. Every taxpayer needs to start planning to take full advantage of the extended tax breaks. The good news is that our office had been anticipating that Congress would extend these tax cuts so we are familiar with them and ready to help you maximize your tax savings.

Saving receipts

One of the simplest - but most important - things you can do is to start organizing your receipts. The new law extends a very valuable tax incentive for individuals in states without a state income tax. You can deduct your state and local general sales taxes through 2007. If you live in a state that does impose an income tax, you can elect to deduct either your state and local income taxes or your state and local general sales taxes.

You calculate your state and local sales tax deduction either by reference to actual receipts or by using special IRS tables. The IRS allows you to alternate from year to year between deducting state sales taxes and deducting state income taxes. You can also alternate using actual receipts or the IRS tables.

Receipts are also important for teachers and other education workers. The new law extends the teacher's classroom expense deduction through 2007. Teachers who bought classroom supplies out of their own funds, and are not reimbursed by their employers, can deduct up to $250. There are some limits on the types of supplies that qualify for the deduction.

Advance planning for education

Advance planning is also helpful for the extended deduction for higher education tuition. The federal tax incentives for education are very confusing. Some but not all can be claimed for the same student. For example, if you claim the higher education tuition deduction you cannot also claim the HOPE or Lifetime Learning tax credits for the same student.

It's easy to make mistakes with the education incentives and claim too high or too low of a tax break. Our office can help you understand the education tax incentives and avoid costly mistakes.

Important news about rollovers

The new law allows employees to make a one-time, once-in-a-lifetime rollover of IRA savings into a health savings account (HSA). Here's where advance planning is critically important. If you don't plan wisely, the tax consequences could be severe. The same is true for the new rule allowing one-time transfers of funds from a health flexible spending arrangement (FSA) or a health reimbursement arrangement (HRA) to an HSA.

Business tax breaks also extended

Businesses also need to do some planning about how they will maximize their tax savings. The extended business incentives, like the extended individual tax breaks, are temporary. Many are extended through 2007.

The new law makes some significant changes to the research tax credit and the Welfare-to-Work/Work Opportunity tax credits. The changes to the research credit could make it more valuable to many businesses. The biggest change to the Welfare-to-Work and Work Opportunity tax credits is their consolidation into one credit for 2007.

Other extended incentives that impact businesses include:

--15-year recovery period for certain leasehold and restaurant improvements

--Corporate donations of computers and scientific equipment

--Archer Medical Savings Accounts

--Deduction for energy-efficient commercial buildings

--Business credit for energy-efficient new homes

--And many more

This is just a brief rundown of some of the incentives in the new law. There are many more...including tax breaks for installing energy-efficient property, tax breaks for some first-time homebuyers, a new but temporary itemized mortgage insurance premium deduction, and much more. Don't hesitate to contact our office. We can discuss more specifically the extended tax incentives and put together a strategy that maximizes your tax savings.