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New figures for 1995.

Tax rate brackets, standard deductions, personal exemptions and several other amounts are adjusted annually for cost-of-living increases. Revenue procedure 94-72 contains new figures for 1995 useful in planning tax strategies.

The standard deduction for 1995 is now $6,550 for surviving spouses and married individuals filing joint returns, $5,750 for heads of households, $3,900 for unmarried individuals, and $3,275 for married individuals filing separate returns. Additional standard deduction amounts for age and blindness remain $750 for married individuals and $950 for unmarried individuals or heads of households.

The standard deduction for an individual claimed as a dependent is the greater of the individual's earned income or $650, up from $600 in 1994.

In 1995, a child under age 14 with at least one living parent can have up to $1,300 (formerly $1,200) of unearned income before the "kiddie tax" applies. In 1995, the personal exemption amount will be $2,500 (up from $2,450 in 1994). However, the personal exemptions and exemptions for dependents will be phased out if adjusted gross income (AGI) exceeds $172,050 for married couples (up from $167,700 in 1994) and $114,700 for singles (up from $111,800 in 1994).

Most itemized deductions are phased out if AGI exceeds a threshold amount. This cutback adjustment is 3% of the excess of AGI over the threshold amount of $114,700 ($111,800 last year).

Inflation-adjusted tax rate tables for tax years beginning in 1995 also can be found in the revenue procedure. The income levels subject to the new 36% and 39.6% rates have been adjusted for inflation for the first time. For single taxpayers, the 15% bracket will rise $600 to $23,350 and the 28% bracket will go up $1,450 to $56,550. For married taxpayers the 15% tax bracket will apply to taxable income of 39,000, a $1,000 increase. The 28% bracket will extend from taxable income over $39,000 to $94,250, an increase of $2,400.

Internal Revenue Code section 135 provides an exclusion of income from the redemption of U.S. savings bonds for taxpayers who pay qualified higher education expenses. This exclusion is phased out, however, once modified AGI exceeds a certain amount, beginning at $42,300 in 1995. Section 132(f) provides an exclusion from gross income for certain employer-provided transportation. These qualified transportation fringes have increased from $155 to $160 per month for qualified free parking but remain at $60 a month for transit passes and transportation in a commuter highway vehicle.

Finally, certain low-income workers are allowed a refundable earned-income credit that is phased out as earned income exceeds certain inflation adjusted amounts. For 1995, indexing will expand the income limit for the maximum credit to $6,160 for individuals with one child, $8,640 for those with two or more children and $4,100 for childless taxpayers.

Observation: There is still a luxury tax on the first retail sale of a passenger automobile: 10% of the excess of the purchase price over $32,000 (same as in 1994). This is an excise tax, and is not deductible on a personal income tax return unless, the car is used in trade, business, profession or an income-producing activity. --Michael Lynch, CPA, Esq., associate professor of accounting at Bryant College, Smithfield, Rhode Island.
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Title Annotation:federal tax rates adjusted for inflation
Author:Lynch, Michael
Publication:Journal of Accountancy
Date:Mar 1, 1995
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