2010 Federal Income Tax Rate and Brackets and various tax benefits will remain unchanged or change only slightly over 2009 levels as shown in the table below. Consumer Price Index (CPI) data released by the Bureau of Labor Statistics (BLS), used by the IRS in calculating 2010 tax parameters, has been reviewed by many tax experts and organizations with consensus estimates showing that the personal exemption amount, standard deduction, federal income-tax brackets and many other figures will barely change next year, Here are some notable changes reported which are important to factor into your 2010/2011 tax planning and setting of 2010 employer withholdings:
- The personal exemption ($3,650) will remain unchanged for this year, along with the $5,700/$11,400 standard deduction for most taxpayers (except for a $50 increase for heads of household filers). This marks the first time that no increase in these parameters has taken place. Nearly two out of three taxpayers take the standard deduction rather than itemizing deductions, such as mortgage interest, charitable contributions, and state and local taxes.
- Due to low levels of inflation over the last year (0.2%), most workers won’t receive as large an increase in take-home pay in January 2010 as they did last January given the automatic inflation adjustments (assuming pre-tax wages stay the same).
- Various tax bracket thresholds will see minor adjustments. For example, for a married couple filing a joint return the taxable income threshold separating the 15 percent bracket from the 25 percent bracket is $68,000, up from $67,900 in 2009.
- The annual gift-tax exclusion of $13,000 also won’t change. This means a person can give away as much as $13,000 each to anyone he or she wishes without any tax considerations. Many wealthy people take advantage of this provision each year as part of their estate-planning strategy. One can give away even more than the exclusion amount by paying someone else’s tuition or medical bills, but must make those payments directly to the medical or educational provider.
Indexing brackets lowers tax bills when there is inflation by including more of one’s income in a lower bracket, such as the 15% rather than the 25% bracket. The lack of change for 2010 creates a level playing field for taxpayers from all brackets, but those with high incomes actually stand to benefit in 2010 because “stealth taxes,” those that don’t involve changing tax rates, are being phased out. Among them are limits on itemized deductions and personal exemption amounts.
Taxpayer savings from inflation adjustments can vary tremendously, depending on an individual’s circumstances. A married couple filing jointly with total taxable income of $100,000 should pay $12.50 less in income taxes in 2010 than on the same income for 2009, compared with a $312.50 savings between 2008 and 2009. A single filer with taxable income of $50,000 should owe $6.25 less next year due to the adjustments, compared to a $156.25 savings with significantly higher inflation between 2008 and 2009. See a review of the best 2010 Tax Filing Software.
[Update -2011 Income Tax Brackets] President Obama has signed into law a bill that covers an extension of all the bush-era tax cuts, in addition to providing additional tax breaks for all families and small business. With this legislation he has essentially created a new 2011 Economic Stimulus package, estimated at around $858 billion. See more on this and details on the new payroll and small business tax breaks in this article. You can also get updated information on the 2011 Federal Income tax brackets and rates, now that this legislation has been passed.
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