tax

10 new tax laws you need to know



In addition, the new law places a tighter cap on the amount of housing costs that a foreign worker can consider in figuring the exclusion amount. Workers living in countries with very expensive housing, such as Hong Kong, will now face larger tax bills because of the housing tax limitations.

While the actual number of Americans working abroad might not be that large, Perez, who also writes About.com's Guide to Tax Planning, suspects the change could catch quite a few folks by surprise.

"More people are claiming the foreign earned income exclusion because of nonmilitary support in the Iraq and Afghanistan rebuilding efforts," says Perez.

9. Rolling over retirement money
However, if you're planning to someday retire abroad instead of work there now, some law changes can help you build up your post-career nest egg.

To encourage workers to take their company retirement plans when they leave a job, the new Pension Protection Act of 2006 will soon allow departing employees to transfer that money directly into a Roth IRA. Such transfers are already OK, but require a two-step process: from company plan to traditional IRA, then to a Roth account. Unfortunately, you'll have to wait a bit to take advantage of this new one-and-done transfer; it's not available until Jan. 1, 2008. But it's definitely something to keep in mind if you're considering changing jobs in the next year or so.

If you eventually opt for this type of transfer, remember that you'll have to meet the other Roth conversion requirements, such as making less than $100,000. And you'll owe taxes on any tax-deferred amounts that you convert. But at least those tax calculations will now be done as part of the simpler, one-step transfer.

10. Old deductions are new again
Three popular tax breaks technically died at the end of 2005: deductions for state sales taxes, educators' classroom expenses and college tuition and fees. They were resurrected at the very end of the 2006 congressional session and are back in force through 2007, just as they were previously.

You must itemize to claim the sales tax deduction, and if you also paid state income tax, you must decide which of those state levies to claim. Both education-related deductions, however, are available to anyone, regardless of whether you itemize or take the standard deduction amount.

The only issue with these three tax breaks is where on the tax form to claim them. Because they were reinstated after the IRS printed the 2006 forms, you'll have to make some special notations, especially if you file paper forms instead of using tax software.

Finally, there's one other welcome change that's due simply to the calendar. This year, April 15 falls on Sunday. That normally would give you one more day, until Monday, April 16, to finish your return. But because that day is the Emancipation Day holiday in Washington, D.C., it affects IRS activity nationwide, meaning that for everyone across the country, the filing deadline is Tuesday, April 17. So you've got two extra days to figure out just how the new laws can help you cut your 2006 tax bill.

In addition to the changes wrought by these 10 laws, many pre-existing laws have new dollar amounts this filing year, thanks to inflation adjustments. See Bankrate's companion story, " Old tax laws, new amounts."

Freelance writer Kay Bell writes Bankrate's tax stories from her home in Austin, Texas, and blogs each day on tax topics at Don't Mess with Taxes.

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