Inflation is not typically a good thing; however, when dealing with the Tax Code, it could mean more money being saved in your pockets.
“Most taxpayers benefit from inflation adjustments since the adjustments tend to preserve the value of most, but not all, of the dollar-based benefits under the Tax Code year after year.”
CCH has released its estimates for the 2014 tax brackets, personal exemption, standard deduction, and other items. General consensus from the estimates is that most taxpayers will be able to keep a few more dollars.
The CCH group uses the U.S. Department of Labor’s Consumer Price Index from September through August prior to the adjusted year for most of their projections. The estimates by CCH are not official, and they should not be relied on for tax purposes. They give a big picture idea of how inflation will affect the aforementioned tax items.
The IRS usually releases the official numbers in December, and those confirmed numbers are the ones that should be used for income tax returns or other federal income tax related purposes.
2014 Tax Brackets Adjusted for Inflation
The chart below shows in detail the adjusted tax rates. For example, a married couple filing jointly with an income of $100,000 should pay $145 less income tax in 2014 than in 2013. Similarly, a single filer with an income of $50,000 should pay $72.50 less tax than in 2013.
The tax rate adjustments do not only affect the tax brackets; the standard deduction and personal exemption totals will be higher as well in 2014. Income ceilings for tax benefits such as education credits, and individual retirement accounts (IRAs) will also be slightly higher.
“The standard deduction for single taxpayers, heads of households and married couples filing jointly will all show increases for 2014, by $100, $150 and $200, respectively.” An increase in the standard deduction means there is a decrease in taxable income, which means lower taxes.
As opposed to the $100 increases in 2012 and 2013 to the personal exemption, inflation will only raise the personal exemption total by $50.
“The personal exemption phaseout (PEP) still applies: the 2014 phase out range for personal exemptions begins at $305,050 for joint filers and $254,200 for single filers. The same income ranges apply to the phase-out of itemized deductions; those limitations are called Pease limitations, named after former Rep. Don Pease (D-OH).”
Lastly, the income tax will not be the only item affected by inflation. The estate and gift tax applicable exemption will rise from $5,250,000 in 2013 to $5,340,000 for 2014. This exemption is the amount that you can give away during your lifetime or at the time of your death without being subject to federal estate tax.
Also, new portability provisions allow for the federal estate tax to be shared between a husband and wife; for 2014, $10,680,000 will be the total that can pass with no federal estate and gift tax.
Becoming law in January 2013, the American Taxpayer Relief Act of 2012 states that the alternative minimum tax (AMT) will be subject to inflation adjustment as well. This is huge because Congress has not touched the AMT in more than forty years.
CCH projects “the AMT exemption for married joint filers and surviving spouses will be adjusted upward to $82,100, up from $80,800 in 2013. For unmarried single filers, the 2014 exemption will be $52,800, up from $51,900 in 2013; and for heads of household, the exemption will increase to $52,800, up from $51,900 in 2013.”
See, inflation can be a good thing… eh at least for tax purposes!
- Taxpayers Will See Relief By Way of Inflation-Adjusted Indexing for 2014 — Wolters Kluwer, CCH Says (virtual-strategy.com)
- Historical Comparisons of Standard Deductions and Personal Exemptions (turbotax.intuit.com)
JDKatz, P.C. is a full-service law firm focused on tax law, business and transactional law, estate planning and elder law. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys, or visit http://www.jdkatz.com.