September 2006

What's New in Taxes

New pension law changes some tax rules

9/1/2006 -

In early August, Congress passed a major new law on pension plans. But buried in the fine print were some unexpected tax provisions. Some could affect your ability to claim deductions for charitable contributions. And others change the tax rules for retirement savings.

If you make charitable contributions and claim them as itemized deductions, be aware of two changes:

* New rules apply to contributions you make by cash or check, regardless of the amount. Starting in 2007, you'll need either a formal receipt from the charity, or evidence such as a cancelled check or an entry in your bank records. Previously, for amounts up to $250, you could rely on your own written records provided they met certain standards.

* From now on you can claim a deduction for used clothing or household items only if they are in "good" condition. Unfortunately, the new law doesn't define "good." To back up your deduction, you might want to snap a photograph of the items using your digital camera or cell phone. Print it out and keep it with the receipt.

Other changes affect retirement saving. For example, if you change jobs, you might find yourself automatically enrolled in the new company's 401(k). You'll have the ability to opt out, of course, but it's part of a plan to encourage higher participation. The new law also extends the ability to make certain hardship withdrawals from 401(k) plans, and allows active-duty members of the Reserves to make penalty-free withdrawals from IRAs and other plans.

If you think these changes might affect you, please contact our office. We'll be happy to provide more information tailored to your specific situation.