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ADJUST A LITTLE HERE, ADD A LITTLE THERE AND SAVE A LITTLE MORE
How IRS Annual Adjustments Can Add to Your Refund
Every year the Internal Revenue Service revises certain tax breaks to account for inflation. The good news is that most of these tax breaks and additional benefits are available to nearly every tax payer. These small additions and increases can have a positive impact on your bottom line. Below is a summary of the adjustments made by the IRS for the 2014 filing season.
1.Increase in Standard Deduction: Once again, the IRS has increased the amount of each level of standard deduction. The standard deduction for a taxpayer with a Single Filing Status is $6,200, up from the 2013 allowance of $6,100. Married Filing Jointly taxpayers saw a two hundred dollar increase in their standard deduction, which for 2014 will be $12,400. Taxpayers using the Head of Household filing status will see their standard deduction increase from $8,950 to $9,100. Even taxpayers using the disfavored Married Filing Separately status get an increase from $6,100 to $6,200 in tax year 2014. 2.Increase In the Personal Exemption: The personal exemption amount will increase from $3,900 to $3,950 for tax year 2014. 3.Earned Income Credit: The amount of available credit under the Earned Income Credit also increased for tax year 2014. A qualifying taxpayer with no children can now receive a refundable credit up to $496, an increase from the 2013 maximum of $487. Qualifying taxpayers with one child will see their maximum Earned Income Credit increase to $3,304 while qualifying taxpayers with two children will see an increase to $5,460. Finally, qualifying taxpayers with three or more children will see their available Earned Income Credit increase from $6,044 to $6,143. 4.Tax Bracket Creep: The IRS also adjusted the top end of all tax brackets to permit taxpayers to earn some more income before entering a higher tax bracket. For example, in 2013 the maximum amount that a Married Filing Jointly couple could earn and remain in the 10% tax bracket was $17,850. In 2014, that limitation was raised to $18,150. Similarly, for a single tax payer, the top end income for the 10% tax bracket was $8,925 in 2013. For 2014, the top end of the 10% bracket will be $9,025.
But not all adjustments announced by the IRS may result in additional tax benefits for taxpayers. For example, taxpayers who itemize may actually lose tax benefits this year with the IRS adjustment of mileage deductions for 2014. Both the standard mileage expense for business travel and medical treatment travel were reduced by 1/2 cent for 2014. The 2014 rates will be 55.5 cents per mile for allowable business travel and 23.5 cents per mile for medical travel. The mileage allowance for charity remains the same.....14 cents per mile....as that rate is set by statute and requires an act of Congress to adjust.
Another important change that may have a negative impact on taxpayers is the phase out limitations on the student loan interest adjustment to gross income. While the amount that can be deducted as an adjustment to income remains the same ($2,500) taxpayers with modified adjusted gross income in excess of $65,000 ($130,000 for joint returns) are subject to a reduction in the amount that can be deducted. Taxpayers with modified adjusted gross income of $80,000 or more ($160,000 or more for joint returns) will see a complete phase out.
These changes, of course, do not include any last minute, end of year changes that Congress may enact during the "lame duck" session following the elections. For more information about these or any other tax question, please contact our office at (618) 235-8514.
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