When Inflation is Good for Taxes . . .

Posted on February 11, 2024

When Inflation is Good for Taxes . . .

Nobody likes inflation, but when it comes to taxes, there may just be a silver lining. How inflation can help you to save taxes is explained below by The Wall Street Journal.

“The law requires annual inflation adjustments on many numbers, from the standard deduction and personal-exemption amounts to tax-bracket tables.

“Washington hasn’t yet announced official numbers for 2015. But Jim Young, professor of accountancy at Northern Illinois University, and George Jones of Wolters Kluwer, CCH have calculated estimates based on recent inflation data. (The numbers will affect tax returns filed in 2016 for the 2015 tax year).

“‘Indexing effectively provides an automatic tax cut for most individuals, without the need for Congress to agree on legislation each year to make it happen,’ Mr. Jones said.

“How much relief you get depends on your tax situation. A married couple filing jointly, with taxable income of $100,000, should pay $125 less income taxes for 2015 than on the same income for 2014 ‘because of indexing of their tax bracket for 2015,’ says Wolters Kluwer, CCH.

“A single person with taxable income of $50,000 ‘should owe $62.50 less next year due to the adjustments to the income-tax rate brackets between 2014 and 2015.’

“‘Add to those savings the additional tax savings realized in most cases by slightly higher 2015 standard-deduction and personal-exemption amounts, as well as amounts that might be claimed from an increase in the income ceilings imposed on tax benefits such as education credits, individual retirement account contributions and more,’ CCH said. ‘Combined, inflation-based tax savings for the 2015 tax year can become substantial.’

“Messrs. Young and Jones project the basic standard deduction for 2015 will rise by $200 to $12,600 for a married couple filing jointly, and by $100 to $6,300 for singles. They project the personal exemption will rise by $50 to $4,000.”