Each year the IRS makes changes to tax rates and increases various tax benefits due to inflation adjustments. By law, these tax
provisions must be adjusted to keep pace with inflation. Here are some of the tax adjustments for 2013 that may help you keep more money in your pocket when you file your taxes next tax season.
Tax Deductions and Exemptions- The tax law provides a standard deduction for those who don’t claim itemized deductions. For 2013 the standard deduction increases to $6,100 ($12,200 for married filing jointly), up from $5,950 ($11,900 for married couples) in 2012.
The personal exemption rose as well, to $3,900 in 2013, up from $3,800 in 2012. There is a limitation on the itemized deductions and personal exemptions for taxpayers with incomes of $250,000 or more ($300,000 for married couples filing jointly).
The maximum Earned Income Tax Credit is also up: in 2013 a couple filing jointly with three or more children can nab a credit as high as $6,044, up from $5,891 in 2012.
Tax Rates- As inflation drives wages up, the amount of wages taxed may be less. In tax year 2013, for each of the marginal tax rates – 10, 15, 25, 28, 33 and 35 percent – you will continue to see a reduction in the amount you’re taxed since income limits taxed at lower tax rates were increased. In 2013 individuals were also given a tax break because Alternative Minimum Tax income limits increased allowing less taxpayers to be subject to this additional tax. Income above $51,900 ($80,800, for married couples filing jointly) may be subject to the Alternative Minimum Tax, up from $50,600 ($78,750 for married couples filing jointly) in 2013.
There are some changes for high-income taxpayers in 2013. A new tax rate of 39.6 percent has been added for taxpayers whose income exceeds $400,000 ($450,000 if married filing jointly).
Gifts – Gifts you give over a certain amount must be disclosed to the IRS by filing a gift tax return. For years, gifts under $10,000 were exempt, and that’s the amount many people remember. But in actuality the exclusion amount has been going up for a number of years. In 2009 through 2012 it was $13,000, but beginning in 2013 you can gift anyone up to $14,000 a year without filing a gift tax return.
Retirement plans – If you contribute to a 401(k) or other voluntary salary reduction plan such as a 403(b) or a TSA, in 2013 you’ll be able to contribute up to $17,500 to the plan, up from $17,000 in 2012. If you are 50 or older you can contribute an additional $5,500, for a total contribution of $23,000.
If you are self-employed and have a SEP IRA, for 2013 you can sock away 25% of your gross income, up to $51,000 of retirement contributions. That’s $1000 more than last year.
IRA contributions are also on the rise. You can contribute up to $5,500 a year to your IRA (that was $5,000 last year), plus an extra $1000 if you are at least 50. To contribute the full amount to a Roth IRA, your income must be $188,000 or less if you are married filing jointly ($127,000 for singles), up from $183,000 in 2012.
Remembering these IRS inflation adjustments will help you plan throughout the year and save at tax time.