2012 Tax Brackets & Standard Deductions Changes

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As you’re likely starting to put things together for your 2011 tax return, it’s never too early to start looking ahead to 2012 taxes.

One of the benefits of inflation (yes, its a silver lining) is that it can lower your tax liability. In the fall, the IRS announced inflation-adjusted tax bracket (aka tax tables) changes, and there was roughly a 3% increase in each bracket.

What are Tax Brackets or Tax Tables?

Tax brackets represent the income tax rate you owe for that portion of your income that falls into that bracket. In other words, only income that falls into that bracket is taxed at that rate. As an example with the 2011 tax brackets, if you are married and filing jointly, your tax rate on your first $17,000 of income is only 10%, income between $17,000 and $69,000 is taxed at 15%, and so on.

Many wrongly assume that if your total income peaks at the 28% tax bracket, for example, all of your income is taxed at that rate. Not true. Before we get to the 2012 tax bracket changes, here are some things to consider.

2012 Tax Planning

What this information can do is help you calculate how much of your income may fall into a higher bracket in the table and look for ways throughout the year to potentially bring it down through retirement contributions and other means.

Here are some examples of things you can do to lower your taxable income:

• Donate to a 501(c)(3).
• Make a 401K contribution.
• Get a home energy tax credit.
• Contribute to a traditional IRA. (Note, you can still do this for 2011 until the 2011 tax deadline in April.)
• Claim the child tax credit if you have a new child or dependent.

This may also be a good time to revisit what your overall adjusted gross income might be this year and adjust your tax allowances so that you don’t end up getting penalized for owing too much in taxes or getting too big of a refund (lending your money to the government, interest-free).

2012 Standard Deductions

Standard tax deductions will also lower your taxable income, if you don’t decide to itemize taxes. The 2012 standard deductions have also increased:

• $5,950 for single filers & married filing separately (up from $5,800)
• $11,900 for married filers (up from $11,600)
• $8,700 for head of household (up from $8,500)
• $950 for dependents (same as 2011)

And now, on to the tax bracket changes.

2012 Tax Brackets

2012 Tax Brackets for Singles:

10% – $0-$8,700 (up from $8,500)
15% – $8,700-$35,350 (up from $8,500-34,500)
25% – $35,350-$85,650 (up from $34,500-$83,600)
28% – $85,650-$178,650 (up from $83,600-$174,400)
33% – $178,650-$388,350 (up from $174,400-$379,150)
35% – $388,350+ (up from $379,150+)

2012 Tax Brackets for Married Filing Jointly:

10% – $0-$17,400 (up from $0-$17,000)
15% – $17,400-$70,700 (up from $17,000-$69,000)
25% – $70,700-$142,700 (up from $69,000-$139,350)
28% – $142,700-$217,450 (up from $139,350-$212,300)
33% – $217,450-$388,350 (up from $212,300-$379,150)
35% – $388,350+ (up from $379,150+)

2012 Tax Brackets for Married Filing Separately:

10% – $0-$8,700 (up from $0-$8,500)
15% – $8,700-$35,350 (up from $8,500-$34,500)
25% – $35,350-$71,350 (up from $34,500-$69,675)
28% – $71,350-$108,725 (up from $69,675-$106,500)
33% – $108,725-$194,175 (up from $106,500-$189,575)
35% – $194,175+ (up from $189,575+)

2012 Tax Brackets for Head Of Household:

10% – $0-$12,400 (up from $0-$12,150)
15% – $12,400-$47,350 (up from $12,150-$46,250)
25% – $47,350-$122,300 (up from $46,250-$119,400)
28% – $122,300-$198,050 (up from $119,400-$193,350)
33% – $198,050-$388,350 (up from $193,350-$379,150)
35% – $388,350+ (up from $379,150+)

Tax Bracket Discussion:

• Which tax bracket will you top out in for 2011?
• What do you think about the 2012 tax rate changes?