|Political battles and a grab for more government revenue make 2012 an uncertain year for taxpayers.|
Your 2012 taxes could benefit from what is usually a painful force of economics. There may actually be an upside to inflation. By law, "the dollar amounts for a variety of tax provisions, affecting virtually every taxpayer, must be revised each year to keep pace with inflation," according to the IRS. The formula used in indexing showed a relatively higher amount of inflation this year over last, just over 3.8%, according to CCH, a Wolters Kluwer business and provider of tax information, software and services. This increase is well above the 1.4% amount used last year and the 0.18% inflation factor used in 2010. "Most taxpayers benefit from inflation adjustments, since they tend to preserve the value of most, but not all, of the dollar-based benefits under the tax code year after year," says George Jones, a CCH senior federal tax analyst. The value of each personal and dependent exemption, available to most taxpayers, is $3,800, up $100 from 2011, according to the IRS. The new standard deduction is $11,900 for married couples filing a joint return, up $300; $5,950 for singles and married individuals filing separately, up $150; and $8,700 for heads of household, up $200. 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, the IRS says. When there is inflation, indexing of brackets lowers tax bills by including more of people's incomes in a lower bracket, an analysis by CCH explains. Tax-bracket thresholds will increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15% bracket from the 25% bracket is $70,700, up from $69,000 in 2011.