Personal exemptions and standard deductions will rise, tax brackets will
widen and individuals will be able to make larger tax-free gifts in 2006, thanks
to inflation adjustments announced by the Internal Revenue Service.
By law, a variety of tax provisions must be revised each year to keep pace
with inflation. As a result, more than three dozen tax benefits, affecting
virtually every taxpayer, are being modified for 2006. Key changes affecting
2006 returns, filed by most taxpayers in early 2007, include the following:
The value of each personal and dependency exemption, available to most
taxpayers, will be $3,300, up $100 from 2005.
The new standard deduction will be $10,300 for married couples filing a
joint return, $5,150 for singles and $7,550 for heads of household. 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.
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 will be $61,300,
up from $59,400 in 2005.
The annual gift tax exemption will be $12,000, up from $11,000 in 2005.
Revenue Procedure 2005-70, containing a complete rundown of inflation
adjustments, is posted on the IRS Web site and will appear in Internal Revenue
Bulletin 2005-47, dated Nov. 21, 2005.
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