After April 17, it's tempting to toss the copy of your 2006 tax return in the file cabinet without a second glance. But if you do, you could overlook an opportunity to save tax dollars in 2007. That opportunity is carryforwards.
What they are.
Due to tax law restrictions and income limits, you may have been unable to take full advantage of certain losses, deductions, and credits on your 2006 return. In some cases, the unused portion of these items can be carried forward to future years.
What to look for.
Examples of carryforwards include capital losses, business net operating losses, and suspended passive losses. Other common carryforwards: charitable contributions, excess home office deductions, and foreign tax credits.
How you can benefit.
Use your carryforwards to reduce the impact of taxable transactions and lower your current year tax.
Illustration.
When you rebalance your investment portfolio during 2007, establish a plan to apply a capital loss carryforward from 2006 to offset 2007 gains on sales of appreciated investments in taxable accounts.
Another suggestion: Increase your participation in passive activities such as rentals to utilize passive activity losses from prior years.
A caution.
Some carryforwards expire more quickly than others, and the rules can be complex.
If you'd like more information, give us a call. We'll be happy to calculate and track your carryforwards and help you with tax planning strategies.
Questions for our Financial Expert?
E-Mail us at: finance@ClevelandSeniors.Com
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