Take Advantage of 2007 Tax Provisions

New Year's Day came and saluted us with a few changes: higher contribution limits for 401(k) plans, a decline in the top federal estate-tax rate and more deduction for many mortgage insurance buyers. Personal exemption, standard mileage rate, income brackets and dozens of other tax items have increased.

While many taxpayers will welcome the tax break, many will be hit with higher taxes. For example, according to the Tax Policy Center, about 11 million workers will pay more Social Security taxes, and unless the law is overhauled, more than 23 million people will be trapped by the alternative minimum tax (AMT) this year, compared to 3.5 million last year. Many will find tax planning to be difficult, especially since they are unsure of what Congress plans to do about the AMT.Let's take a closer look at the major changes and the effects they may have on you:

Retirement savings The maximum amount you can contribute to a 401(k) plan increases from $15,000 (in 2006) to $15.500 (in 2007). If by the end of the year you are 50, you can put away an extra $5000, for a total of $20,500. The maximum contribution limits for individual retirement accounts remain the same which is $4,000 if you are under 50.

Another change is the increase of the income limits when making contributions to a Roth IRA. If you are filing jointly and your income is between $156,000 and $166,000, the amount you can contribute phases out. The range has increased for most singles from $99,000 to $114,000.

Under the new law, a person who inherits money from an employer sponsored retirement plan, like the 401(k), and from someone who wasn't their spouse can put it directly into an IRA without paying tax.

Encouragingly, this change will benefit many people who want to leave their possessions to children.

Estate tax For those inheriting large fortunes, they would be happy to know that the top federal estate-tax rate declined to 45 percent for estates of people who die in 2007 compared to 46 percent in 2006. Although transfers to a spouse are usually free from tax, by law the basic federal estate-tax exclusion will remain $2 million in 2007 and 2008. In 2009 this exclusion will increase to $3.5 million, but in 2010, this tax will disappear for one year. 2011 will see the re-appearance of the federal estate tax bringing with it an exclusion of only $1 million.

Raising the exclusion level and lowering the top tax rate are changes that Congress wants to see implemented before then.

Mileage rate Many drivers who use their cars for business will benefit from an increase in the IRS standard optional mileage rate. They can choose between deducting their actual costs or using the IRS's standard mileage rate. The rate for calculating deductible costs of using your car for business is 48.5 cents per mile (up from 44.5 cents in 2006). The rate is 20 cents per mile for medical and moving purposes (up from 18 cents last year).

Mortgage insurance For those who'll pay mortgage insurance this year, a new law that would bring in a new deduction was recently signed by President Bush. Unfortunately, once your adjusted gross income exceeds $100,000 (or $50,000 for married people filing separately) this new deduction begins to phase out. This doesn't, however, apply to mortgage-insurance contracts issued before this year. Analysts estimate that if your income is more than $109,000 (or $54,500 for married people filing separately) you won't qualify for any deduction.

Social Security taxes The maximum amount of earnings subject to the Social Security tax grew from $94,200 (2006) to $97,500 (2007). According to analysts, that simply means that the maximum additional tax that would be taken from an employee earning above the 2006 wage base will be $204, 60. This year, those who are self employed may owe about $409.20 more. But the good news is that you can get back part of it through a federal deduction.

Charitable giving If you donate cash to charity you will now need to have a

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