Posted on Jan 21, 2011
Adjusting numbers in the federal income tax code to account for inflation, known as indexing, is an annual event. Indexing affects deductions, exemptions, exclusions, tax brackets – and your tax planning.
Here are selected changes to keep in mind as you review tax strategies for 2011.
* Personal exemptions will increase by $50 to $3,700. You can subtract that amount from your adjusted gross income for yourself, your spouse, and any dependents. In addition, there is no phase-out or reduction in personal exemptions for 2011, no matter how much income you have.
* The basic standard deduction is $11,600 when you’re married and file a joint return. If you’re single or married filing separately, the standard deduction is $5,800. Additional standard deductions are available for age and/or blindness. Note: The extra standard deduction for real estate taxes is not available for 2011.
* The kiddie tax threshold for 2011 is $1,900. That’s how much investment income your child under age 19 (under age 24 for students) can earn before the income is taxed at your highest rate.
* The traditional and Roth IRA contribution limit is $5,000. You can contribute an additional $1,000 if you’ll be age 50 or older by the end of the year.
* The annual gift tax exclusion is $13,000 ($26,000 when you elect to split gifts with your spouse).
* Standard mileage rates go up slightly. You can deduct 51¢ for each mile you drive your car for business purposes. The per-mile rate for calculating a charitable deduction is 14¢, and medical and moving mileage is deductible at a rate of 19¢.
Many other items are subject to indexing. In addition, some important figures, such as the alternative minimum tax exemption, are adjusted by Congress. Please contact us for additional information.