Update on Tax Inflation Adjustments in 2013

Posted on November 7, 2012 by Dr. David Edward Marcinko MBA MEd CMP™

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Tax Bracket Changes Alert

By Children’s Home Society of Florida Foundation

Each year the IRS publishes multiple changes in various tax brackets and amounts that are increased to reflect the rate of inflation. In Rev. Proc. 2012-41; 2012-45 IRB 1 (18 Oct 2012), the IRS released the inflation-adjusted items for 2013.

There were moderate changes in many items. The following includes some of the more significant income tax adjustments:

1. Kiddie Tax – The exclusion for the Kiddie Tax for 2013 is increased to $1,000. For most children, net unearned income in excess of double the exclusion is taxed at the parent’s rate.

2. Savings Bonds for Higher Education – The phase-out for taxpayers receiving income from United States savings bonds used to pay for qualified higher education expenses will start at $112,050 for joint returns and $74,700 for other returns.

3. Medical Savings Accounts – For self-only coverage, the deductible may range from $2,150 to $3,200 and out-of-pocket expenses may not exceed $4,300. For family coverage, the deductible range is $4,300 to $6,450 and the expense limit is $7,850.

4. Token Benefits for Charitable Gifts – A low-cost item is defined as one that has a value of $10.20 or less. It should include the logo, colors or other identification of the charitable organization. Donors who make gifts in excess of $51 may receive a low-cost item and still qualify for a full deduction. A charity may give an insubstantial benefit to a donor provided that the benefit does not exceed 2% of the value of the gift or a maximum of $102.

Gift and Estate Taxes

There are also several provisions that affect gift and estate taxes:

1. Special Use Valuation – Under Sec. 2032A the qualified property may be reduced in value by up to $1,070,000.

2. Annual Exclusion – The present interest annual exclusion is increased to $14,000 in 2013.

3. Gifts to Non-Citizen Spouse – The applicable limit is $143,000.

4. Reduced Interest on Estate Tax – The installment estate tax “2% portion” for Sec. 6166 is $1,430,000.

Conclusion

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2 Responses

  1. Bernard, on March 23, 2014 at 9:45 PM said:

    Why does the Federal Reserve aim for 2 percent inflation over time?

    The Federal Open Market Committee (FOMC) judges that inflation at the rate of 2 percent (as measured by the annual change in the price index for personal consumption expenditures, or PCE) is most consistent over the longer run with the Federal Reserve’s mandate for price stability and maximum employment. Over time, a higher inflation rate would reduce the public’s ability to make accurate longer-term economic and financial decisions.

    On the other hand, a lower inflation rate would be associated with an elevated probability of falling into deflation, which means prices and perhaps wages, on average, are falling–a phenomenon associated with very weak economic conditions. Having at least a small level of inflation makes it less likely that the economy will experience harmful deflation if economic conditions weaken. The FOMC implements monetary policy to help maintain an inflation rate of 2 percent over the medium term.

    Bernard

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  2. David Twyford, on November 11, 2014 at 9:14 PM said:

    Inflation May Seem Laughable, But Hold Your Laughter

    The “inflation/no inflation” issue seems to have been beaten to death, so I will spare you my case.

    But as a contrarian, I’m intrigued by the fact that it almost seems laughable to be an inflation hawk (NOT my view, but rather my perception of the prevailing market view).

    Given the success (and wealth) of contrary thinking’s prominent advocates (Warren Buffett, Jim Rogers, etc.), I wonder: might it be sound investing strategy to do the laughable thing? Might a new variant on contrarian investing principles have been born?

    It seems insufficient to merely invest in that which is out-of-favor. Without a positive change (or multiple positive changes), out-of-favor investments can remain out-of-favor indefinitely. So one’s timing could be way off indeed.

    But it seems that once an investment idea crosses the threshold of being generally laughable (or at least laughable to many), market sentiment may be near a key turning point.

    Markets have a way of surprising investors, so those now laughing may not be laughing for much longer.

    http://unlovedmoney.com/2014/09/23/inflation-may-seem-laughable-but-hold-your-laughter/

    And, the contrarians may get the last laugh…and laugh all the way to the bank.

    David Twyford
    via Ann Miller RN MHA

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