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IRS Updates for Inflation in 2012

Unlike previous years, the IRS has issued a change in many of the deductions and exemptions to account for inflation in the 2012 tax year. Below is a sampling of the changes in the numbers (IR-2011-103; IR-2011-104; Rev. Proc. 2011-52, 2011-45 IRS [Rev. November 7, 2011]). The full update can be found at irs.gov.

Current Updates for Inflation:

PERSONAL

• Standard Deduction  rises to $5,950 single/$11,900 joint (up $150/$300 from 2011)
• Additional Standard Deduction for the blind and senior citizens rises to $1,450 single/$1,150 joint
• Personal Exemption rises to $3,800 (up $100 from 2011)
• 401(k)/403(b)/457 Contribution Limit rises to $17,000 (up $500 from 2011)
• Income Limit for Full Roth IRA Contributions  rises to $110,000 single/$173,000 joint (up $3,000/$4,000 from 2011)
• Limitation on Annual Benefit under Defined Benefit Plan rises to $200,000 (up $5,000 from 2011)
• Monthly Limit on the value of qualified transportation benefits rises to $240 (up $10 from 2011)
• Maximum earned income tax credit (EITC) for low- and moderate-income workers and working families rises to $5,891 (up $140 from 2011)
• Maximum income limit for the EITC rises to $50,270 (up $1,192 from 2011) — the credit varies by family size, filing status, and other factors, with the maximum credit going to joint filers with three or more qualifying children. 
• Foreign earned income deduction rises to $95,100 (up $2,200 from 2011) 
• The modified adjusted gross income threshold at which the lifetime learning credit begins to phase out  rises to $104,000 for joint filers (up $2,000 from 2011) and $52,000 for singles and heads of household (up $1,000 from 2011). 
• Medical Savings Accounts (MSAs) increased from the tax year 2011 amounts
  • Minimum annual deductible ($2,100 self-only/$4,200 family)
  • Maximum annual deductible ($3,150 self-only /$6,300 family)
  • Maximum annual out-of-pocket expenses ($4,200 self-only /$7,650 family)
• Interest Paid on Student loans: $2,500 deduction will begin to phase out for married taxpayers filing a joint return at $125,000 and phases out completely at $155,000 (up $5,000 from 2011 — single-taxpayer levels remain the same)

ESTATE AND GIFT

• Estate Tax Exemption: $5,120,000 (up $120,000 from 2011)
• Gift exclusion: $13,000

Please feel free to contact Ken Buczkowski at kbuczkowski@BlackmanKallick.com or 312-980-2951, or your Blackman Kallick representative for further information. Our thanks to Melissa Colgan for her contribution to this article.

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.