By Tracy Byrnes
12/12/2006 12:04 PM EST
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If you plan to shop at Tiffany (TIF - news - Cramer's Take - Rating) or Cartier this holiday season, you'd better save your receipts.
That's because over the weekend Congress extended a sales tax deduction for 2006 and 2007. In the legislative body's last official battle in its current form, Congress also extended the college tuition deduction and the $250 teachers' deduction for out-of-pocket supplies.
Health Savings Account perks, a solar-energy credit extension and a new AMT credit also were part of the much-anticipated $45.1 billion tax package, which President Bush is expected to sign into law before Christmas.
But for now, let's focus on the items that will have the biggest effect your 2006 tax return.
Sales Slip Search
Now, for 2006 and 2007, you can deduct either your state and local income taxes or your total sales tax paid. You can't take both.
Typically, you would choose whichever is higher, but run the numbers.
If you live in a state like Connecticut, where the state income tax is actually pretty low, your sales tax expenditures may be higher, so that could be a home run for you. But if you live in Alaska, this whole thing may be moot. Alaska doesn't have a state income tax or a state sales tax.
Unfortunately, this extension passed with just two weeks left in the year, so many taxpayers are left to scramble to recreate a year's worth of spending. Unless you bought big-ticket items, like furniture, media equipment or that Tiffany engagement ring, you might have no track record of what you spent on sales tax in 2006.
Well, remember, the IRS created sales tax tables to help. These tables take into account variables such as your filing status and number of exemptions and offer a best guess of what someone in your tax position would probably have spent on sales tax during the year. You'll have to do a quick calculation, but then you'll have an estimated sales-tax-paid number.
These new guidelines, however, aren't going to specifically be on your tax form. That's because the 2006 tax forms and instructions were already printed. So there is no line on the Schedule A form for the sales tax deduction, nor are the sales tax tables in the instructions.
So now what?
"The unofficial word is the IRS will print new instructions," says Bob Scharin, editor of Warren, Gorham & Lamont/RIA's Practical Tax Strategies, a monthly journal for tax professionals. The IRS likely won't, however, print new forms.
The new instructions will tell you where to put the sales tax deduction, as well as the teachers' deduction and the tuition deduction since they don't have lines on the form either.
So keep checking the IRS Web site for updated instructions. At the very least, you now know to keep your sales tax receipts for 2007.
A Refresher for Teachers and Students
Teachers can now deduct up to $250 spent on classroom supplies in 2006 and again in 2007. Even better, the deduction is claimed directly on Form 1040 or Form 1040A, meaning there's no need to itemize to get the break.
And for students (or the parents who pay their tuition bills), tuition, registration fees and other required fees all count toward a tuition and fees tax deduction that was extended. You can't include the cost of books, supplies, software, room and board, or other miscellaneous expenses for schooling, though.
The maximum deduction is $4,000 per year if your income is $65,000 or less as a single person or $130,000 or less as a married couple. The credit drops to $2,000 when a single person's income is over $65,000 but under $80,000. For married folks, that phaseout range is over $130,000 but under $160,000. Check out the IRS Publication 970, Tax Benefits for Education, for more details.
All these items require that you saved your receipts for 2006, so hopefully you have been on the ball.
If not, just go buy that Tiffany diamond before year-end. She deserves it.