Debt Free

There Are Some New Tax Laws in Town

To reach your goal of becoming debt free, one of the best tools at your disposal is lowering your expenses. Like many Americans, your tax bill is a pretty significant expense. Here are some assorted, new tax laws and tax code revisions that could affect your tax bill for 2007.

401k and Retirement Account Tax Law Changes

Hopefully no one close to you will die in the coming year, but if they do, and they have a 401k, the IRS will now let a beneficiary roll it over into a qualified retirement plan. They can perform the roll over even if that beneficiary is not the spouse of the deceased. This goes into effect Jan 1, 2007.

Don’t get too excited however, because the retirement contribution credit, first phased in for 2002, expires after 2006, so you’ll not get to take advantage of it for 2007. They didn’t totally forget about the working person, however. The

Income limits for deductible IRA contributions was increased up to $100,000 for married filing jointly, and $60,000 for singles.

Federal lawmakers passed the Pension Protection Act of 2006, in, appropriately enough, 2006. One provision in the Act allows employers to reverse the way 401k plans have traditionally been conducted. In the past, you had to opt in to a 401k, now they can assume you’re in, unless you inform them otherwise. That’ll be a perfect way for many retirement planning averse individuals to get some tax deferred retirement savings.

Another provision in the new Pension Act lets the IRS deposit your tax refund directly into your IRA or other qualifying retirement account, again, great for those who just don’t plan for retirement. Now they don’t have to, but they’d better have someone do their taxes who’ll get them a healthy refund every year.

The Dolphin State repealed the Intangibles Tax beginning the coming year. As of Jan 1, 2007, Florida is even more appealing for retirees from the north, because they’ve repealed their tax on various assets the state deemed intangible. According to the State of Florida: “"Intangible personal property" is defined as all personal property which is not in itself valuable, but derives its chief value from that which it represents, including but not limited to: stocks, bonds, mutual funds, money market funds, loans, notes, and certain accounts receivable.” So you can save some money there.

The “Saver’s Credit”, which would have waved bye bye at the end of this year, has been extended for 2007 and beyond. This little bonus for savers can lop a G off your tax bill if you save enough. The eligibility threshold for this low income deduction will also be indexed for inflation now.

Business Tax Changes

If you own a franchise in Joisey, prepare for a bit of a tax hike. For the next three years, the Garden State says you’ll be paying a 4% surcharge on your tax bill. Thankfully it’s only on your tax bill, not your sales.

If you’re an Eagles fan instead of a Giants fan, however you’ll see a small bit of tax relief. The City of Really Good Sandwiches has lowered the Business Privilege Tax rate on gross receipts down to 0.175%. Yipee!

According to the IRS there are changes in Section 179 property deductions for 2007. The maximum deduction for property placed in service in 2007 is increased to $112,000 for qualified property. This limit is reduced by the amount by which the cost of section 179 property placed in service during the 2007 tax year exceeds $450,000. Got that? If not, you can see the IRS website for how to depreciate property here: IRS 179 Depreciation Guidelines

The standard business mileage deductions for operating light vehicles such as cars, vans, pickups, or panel trucks will be increased to 48.5 cents per mile for 2007.

Speaking of business taxes, the Tax Foundation ranks Wyoming, South Dakota and Alaska as the 3 most favorable states from a tax perspective for 2007. On the other hand, you’ll be hating life if your business is in New Jersey, Ohio, or Rhode Island.

For all you Cornhuskers, cities throughout Nebraska are imposing brand new sales and use taxes beginning in either January or April of 2007. They are following others that began imposing such taxes and fees in October. If you’re lucky enough to live Hastings, NE though, yours are going to drop 33%.

State Income Tax

Some states actually decreased tax withholding beginning Jan. 1, 2007. Among these are Hawaii, Minnesota, Utah, Maine, and North Dakota.

Charitable Contribution Changes

The IRS has enacted some shall we say, revisions, to the way you’ll be able to figure tax deductions for charitable donations beginning in 2007. It doesn’t get any easier to give away your hard earned cash, either. Now, for example, you’d better keep the cancelled check if you want to deduct your $100,000 to the Red Cross. The charity could also screw you if they fail to use a donated item in a non tax exempt way and the IRS finds out about it. Now, they can come after you to get back any tax benefit you may have received. Ouch! This applies to donated items to which fair market value was claimed.

If you give cars to charity, you know that beginning in 2006, you could only deduct what the charity actually received for the vehicle. Now the IRS is gunning for other non cash contributions as well. Now, if you give clothes, furniture, or other non-cash contributions, you’ll have to fill out a Form 8283, for Non-cash Charitable Contributions, and send it in with your tax return. The examiner will have a  bit more literature to peruse when he’s looking at your return and evaluating your deductions.

There are many more changes and adjustments to taxes for the coming year. Sit down with your tax preparer, or software, now to ensure you’re planning for the minimum tax bill in the coming year.