Inflation Widens Tax Brackets & Changes Benefits
Adjustments for inflation announced Friday by the Internal Revenue Service (IRS) will increase personal exemptions and deductions, widen tax brackets and allow individuals to make larger tax-free gifts in 2006. By law, certain tax provisions, including more than three dozen tax benefits, must be revised annually in order to keep pace with inflation.
Key changes affecting 2006 tax returns (filed by most taxpayers in 2007) include:
- The value of each personal and dependency exemption, available to most taxpayers, will increase $100 from the 2005 level to $3,300.
- The standard deduction, taken by two-thirds of all American taxpayers, will be $10,300 for married couples filing jointly, $5,150 for singles and $7,550 for heads of household.
- Tax brackets for each filing status will increase.
- The annual gift tax exemption will increase $1,000 from the 2005 level to $12,000.
A complete listing of inflation adjusted items for 2006 is available in Revenue Procedure 2005-70.