You’ve probably heard of the consumer price index, or CPI, a government statistic that measures the change in the price of certain items over a specified time period. But you may not realize the CPI affects your tax return.
That’s because the CPI is used as a measure of inflation, and the tax code calls for mandatory inflation adjustments to many numbers, including the standard deduction and exemptions.
Here are the inflation-adjusted figures for your 2013 federal income tax return.
- Standard deduction. The standard deduction is the flat dollar amount you can use to reduce your taxable income when you do not itemize. For 2013, when you’re single or married filing separately, your standard deduction is $6,100, an increase of $150 from 2012. If you’re married and file a joint return, or are filing as a surviving spouse, the 2013 standard deduction went up $300 from 2012, to $12,200.
- Exemptions. Two types of exemptions are available. You can claim the personal exemption for yourself and your spouse. The dependency exemption is for qualifying children or relatives.
For 2013, each exemption will reduce your taxable income by $3,900, an increase of $100 from the 2012 amount.
Inflation adjustments also increased the upper limits of tax brackets for 2013, as well as other exclusions, deductions, and phase-outs. Contact us for more information on how these adjustments impact your tax situation.