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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 . 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 'bank record' in order to deduct the donation. Such proof can be a canceled check or a receipt from the charity.

Income brackets
Each year because of inflation the IRS is required by law to adjust its tax tables. Your income and other details, have a lot to do with how these changes will affect you. It's estimated that a married couple who is filing jointly with a total taxable income of $100,000 will pay about $268 less in federal income tax this year than they did in 2006 if they had the same income. The most to benefit by this law are the higher-income taxpayers. For example, taxable income of more than $349,700 will be taxed this year at the top 35 percent federal rate.

Alternative minimum tax
To protect people from this tax, higher exemption levels were temporarily ended in December 2006. In addition, Congress has recently approved a change that will benefit some filers who applied the incentive stock options during the high-tech boom and were hit by the AMT as their investments declined.

IRA transfers
If you are 70 :%$frac12; or older, you can take advantage of a tax break that allows you to transfer as much as $100,000 from your IRA to a certified charity without being taxed. This transfer will count toward your required minimum distribution.

Taxpayers are advised to seek help from a tax professional if they are experiencing trouble understanding these new tax provisions.

Earnest Young is a tax and accounting writer for