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2006: A look back - A look ahead  
  Taxpayers cleaned up with new credits last year, but be forewarned: Big Brother will be looking more closely in 2007.
 Taxes
 Personal finance calendar  Personal finance calendar 

10 tax law changes in new pension law

But those amounts will drop back to the $2,000 level in 2010. And the catch-up provision that now allows workers age 50 or older to add another $1,000 to an IRA would have disappeared.

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Such future contribution worries are no more. Current IRA contributions levels and catch-up allowances, as well as similar provisions at greater levels for 401(k)s, will be permanent, thanks to the pension law.

6. Saving the Saver's Credit
The Saver's Credit was also made permanent. This tax break, created to reward lower-income workers who put money into a retirement account, was set to expire at the end of 2006. Now eligible workers can continue to claim the credit, which could cut up to $1,000 off a filer's tax bill. And next year the income levels used to determine eligibility and actual credit amounts will be indexed for inflation. This should allow more taxpayers to take the credit or at least keep many from becoming ineligible.

While the new pension law technically was designed to address retirement issues, it contains several tax provisions in other areas.

7. Tax-free 529 distributions
One of the most welcome nonpension provisions is the permanent continuation of tax-free withdrawals from Section 529 college savings plans. The tax exclusion had been scheduled to expire at the end of 2010. There is a bit of a retirement connection: With the 529 tax-free option now in full and perpetual force, some parents and students won't have to resort to tapping IRAs to pay for school.

Charities, and those who give to them, also got some special attention in the pension law, not all of it to taxpayer liking.

8. Proving donated goods' value
IRS officials have long suspected that taxpayers inflate the value of donated items. The law had been changed this year to tighten rules on donated cars. Now a similar approach is being taken in evaluating the deductibility of donated clothing and household goods.

The IRS can now deny deductions for goods that are of "minimal monetary value." Specifically, the law requires that these items be in good used condition or better.

How will the tax examiner know? When you give goods, you have to fill out Form 8283, Noncash Charitable Contributions, detailing your generosity, and send it in with your return. True, taxpayers can still inflate the used property's value there, but with the new guidelines, tax examiners might be looking at this form, and asking follow-up questions, more than usual.

  -- Updated: Nov. 1, 2006
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