IRS Increases Deductions and Exclusions for the Tax Year 2012
The Internal Revenue Service recently announced that for tax year 2012, personal exemptions and standard deductions will increase, and tax bracket thresholds will rise because of inflationary effects. This article will explain some of these changes.
Personal Exemptions, Standard Deductions and Tax Bracket Changes
The increased amount of each personal and dependent exemption will be $3,800 (up $100 from 2011). The updated standard deduction will be $11,900 for married couples filing joint returns (up $300), $5,950 for single individuals and married individuals filing separately (up $150), and $8,700 for heads of household (up $200).
Tax-bracket thresholds will also increase for each filing status. For married couples filing a joint return, the 25% taxable income threshold will begin at $70,700, up from $69,000 for tax year 2011.
401(k) Contribution Changes
The IRS also announced that the maximum 401(k) contribution amount will increase by $500 to $17,000.
Foreign Earned Income Deduction
The IRS stated that the maximum foreign earned income deduction will increase by $2,200 to $95,100 for tax year 2012.
Estate and Gift Tax Exclusions
The basic estate tax exclusion will increase to $5,120,000 (up from $5,000,000 for calendar year 2011) for the estate of any decedent dying during calendar year 2012. Further, the aggregate decrease in value of an estate’s property cannot exceed $1,040,000 (an increase of $1,020,000 for 2011) for executors electing the special use valuation method for qualified real property.
The annual gift exclusion will stay at $13,000.
Conclusion
This article is intended to give a brief summary of these issues, and should not be construed as legal or tax advice. Please consult IRS materials independently for further verification. If you have further questions regarding your own tax circumstances, Sherayzen Law Office offers professional advice for all of your US and international, and estate planning tax needs. Call our office (952) 500-8159 or email [email protected] for a consultation today.