Many taxpayers will benefit from inflation-based adjustments to various deductions, exemptions, credits and thresholds for the 2014 tax year. A number of changes went into effect. The net effect is essentially a tax cut for the taxpayers who are affected.
For the 2014 tax year, many taxpayers will benefit from inflation-based adjustments to various deductions, exemptions, credits and thresholds. By law, the Internal Revenue Service must make these adjustments based on the inflation rate. While not every amount is changed every year, there are always some adjustments. A number of changes went into effect in 2014. The net effect is essentially a tax cut for the taxpayers who are affected.
Deductions and exemptions
Most taxpayers enjoy an exemption for themselves and any dependents. For 2014, this exemption rises to $3,950, $50 more than 2013. For the bulk of taxpayers, who don't itemize deductions, the standard deduction rises to $12,400 for joint filers, $9,100 for heads of household and $6,200 for single filers and married taxpayers filing separately. Taxpayers using the foreign earned income exclusion will see a rise to $99,200, up $1,600 from 2013.
Credits and phase-outs
The earned income tax credit (EITC) is an important tax benefit for low- and middle-income taxpayers, particularly those with dependent children. For 2014, the maximum credit rises from $6,044 to $6,143. For purposes of qualifying for the EITC, the maximum income rises to $52,427, up from the 2013 maximum of $51,567.
The phase-out of the lifetime learning credit begins at a modified adjusted gross income of $108,000 for joint filers, a rise from 2013's $107,000 limit. For singles and heads of household, the limit goes from $53,000 to $54,000.
Phase-out limits for the deduction on student loan interest are unchanged for 2014 with the deduction phasing out from $60,000 to $75,000 for individual taxpayers and from $125,000 to $155,000 for joint filers.
Tax bracket thresholds
All tax brackets except the highest benefit from a widening in 2014, thanks to the IRS inflation adjustments. The 39.6 percent tax bracket is the highest bracket in addition to the 10 percent, 15 percent, 25 percent, 28 percent, 33 percent and 35 percent brackets.
Estate and gift taxes
Wealthy taxpayers see a rise in the amount that can be left to heirs without paying estate tax for 2014, up to $5.36 million from $5.25 million in 2013. However, the annual gift tax exclusion remains at $14,000.
A 2014 inflation adjustment comes into play for estate executors choosing the special use valuation for qualified real property. Essentially, the special use valuation allows an executor to assign a property a lower value -- and consequently a lower estate tax liability -- if its "special use" lowers its value below what would otherwise be fair market value. For 2014, executors can lower the value of property in this manner by up to $1.09 million, up $20,000 from 2014.
Get every deduction
TurboTax Deluxe searches more than 350 tax deductions and credits so you get your maximum refund, guaranteed.