2014 Inflation Adjustments by the IRS

On October 31, 2013, the Internal Revenue Service (IRS) announced the 2014 annual inflation adjustments for more than forty tax provisions, including the tax rate schedules, and other tax changes.

The tax items for taxable year 2014 of greatest interest to most taxpayers include the following:

- The tax rate of 39.6% affects singles whose income exceeds $406,750 ($457,600 for married taxpayers filing a joint return), up from $400,000 and $450,000, respectively.

- The standard deduction rises to $6,200 for singles and married persons filing separate returns and $12,400 for married couples filing jointly, up from $6,100 and $12,200, respectively, for tax year 2013. The standard deduction for heads of household rises to $9,100 up to $8,950.

- The limitation for itemized deductions claimed on tax year 2014 returns of individuals begins with incomes of $254,200 or more ($305,050 for married couples filing jointly).

- The personal exemption rises to $3,950, up from the 2013 exemption of $3,900. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $254,200 ($305,050 for married couples filing jointly). It phases out completely at $376,700 ($427,550 for married couples filing jointly).

- The Alternative Minimum Tax Exemption amount for tax year 2014 is $52,800 ($82,100 for married couples filing jointly). The 2013 exemption amount was $51,900 ($80,800 for married couples filing jointly).

- Estates of decedents who die during 2014 have a basic exclusion amount of $5,340,000, up from a total of $5,250,000 for estates of decedents who died in 2013.

- The annual exclusion for gifts remains at $14,000 for 2014.

- The foreign earned income exclusion rises to $99,200 for tax year 2014, up from $97,600 for 2013.

The IRS also announced cost-of-living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2014:

- The limitation for Defined Contribution Plans under Section 415(c)(1)(A) is increased in 2014 from $51,000 to $52,000.

- The Annual Compensation Limit under Sections 401(a)(17), 404(I), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $255,000 to $260,000.

- Effective January 1, 2014, the limitation on the annual benefit under a Defined Benefit Plan is increased from $205,000 to $210,000.