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 Simons Bitzer at (317) 782-3070 for additional information.