How the Price of Milk Might Lower Your 2012 Taxes

Photo (cc) by markhillary

No one likes paying taxes, but there’s some good news on the horizon: Taxes for many people will go down next year. This will happen despite the political gridlock that has seized Washington, so neither party can claim the credit.

If you’ve been to the grocery store or gas station lately, you know that prices are rising. But while inflation is bad news for the budget, it’s good news for taxpayers. That’s because the IRS uses inflation stats to adjust tax brackets every year to fight “bracket creep:” something that would happen if inflation-indexed wages unfairly pushed people into higher tax brackets.

In other words, if your pay doesn’t go up next year, at least your taxes might go down.

In the video below, Money Talks News founder Stacy Johnson explains how the tax code works – and who stands to benefit most. And we’ve got more details on the other side…

So as Stacy explained, since the value of the standard deduction, personal exemptions and tax brackets rise as inflation increases, all things being equal, your taxable income should decline next year.

Here are the three terms you need to know…

  1. Personal Exemptions. Exemptions are an amount you get to subtract before arriving at your taxable income, so the higher the better. For 2011, the personal exemption amount was $3,700 -unchanged from the year before. But for 2012, thanks to inflation, it’s estimated by tax publisher CCH to rise to $3,800. If that turns out to be the case, that’s $100 less you’ll be paying taxes on.
  2. Standard Deduction. When you file your taxes, you have the option of itemizing your deductions or just taking the standard deduction. If you have a lot of tax-deductible expenses, such as interest on a mortgage or charitable donations, you’ll probably save more money by itemizing. If not, you’ll claim the standard deduction. Like the personal exemption, this too is indexed to inflation. If CCH’s estimate is correct, married couples filing jointly will have a $11,900 standard deduction in 2012, an increase of $300 over the 2011 amount. Single filers will have a standard deduction of $5,950, up $150 from 2011.
  3. Tax-Bracket Adjustments. Of the three parts of the income tax code that are indexed to inflation, this is the one can have the greatest effects on those who earn the most. If you understand marginal tax rates, you know that different parts of your income are taxed at different rates. For example, in 2011, the first $8,500 of taxable income earned by a single person was subject to a Federal Income Tax rate of 10 percent, and earnings from $8,500 to $34,500 were taxed at 15 percent. Fortunately, these thresholds rise every year, depending on inflation. In 2012, those first two brackets are estimated to move to $8,700 and $35,550. The top bracket of 35 percent, applied on income more than $379,150 in 2011, will move to $388,351 in 2012.

As Stacy pointed out in the video above, while inflation adjustments apply to all taxpayers, those who make the most benefit the most. According to CCH, a married couple with taxable income of $100,000 will owe $190 less in income taxes in 2012 than 2011. A married couple with taxable income of $450,000 in 2012 would pay $732 less in taxes.

At a time when everyone seems to be simultaneously complaining about high taxes and the fact that the government is running a deficit, it’s nice to know that at least some part of our tax code is making sure that your tax bill for next year doesn’t rise unchecked by inflation.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
9 Forgotten Frugal Strategies — and How to Resurrect Them
9 Forgotten Frugal Strategies — and How to Resurrect Them

These time-tested methods can help us live smarter today.

5 Ways to Put an End to Junk Mail
5 Ways to Put an End to Junk Mail

Here’s how to keep unwanted mail from clogging your mailbox and trash can.

8 Retailers That Offer Free Prescription Drug Delivery
8 Retailers That Offer Free Prescription Drug Delivery

You won’t have to leave the safety of home to get prescriptions if you use these pharmacies.

11 Expenses That Quietly Drain Your Wallet
11 Expenses That Quietly Drain Your Wallet

It’s scandalously easy to overspend in these areas of your life.

The 5 Worst Home Upgrades for the Money
The 5 Worst Home Upgrades for the Money

These home improvement projects basically never pay off.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
11 Things Retirees Should Always Buy at Costco
11 Things Retirees Should Always Buy at Costco

This leader in bulk shopping is a great place to find discounts in the fixed-income years.

Over 50? The CDC Says You Need These 4 Vaccines
Over 50? The CDC Says You Need These 4 Vaccines

Fall is the time to schedule vaccines that can keep you healthy — and even save your life.

9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

11 Senior Discounts for Anyone Age 55 or Older
11 Senior Discounts for Anyone Age 55 or Older

There is no need to wait until you’re 65 to take advantage of so-called “senior” discounts.

8 Things You Can Get for Free at Pharmacies
8 Things You Can Get for Free at Pharmacies

In this age of higher-priced drugs and complex health care systems, a trip to the pharmacy can spark worry. Freebies sure do help.

These Are the 4 Best Medicare Advantage Plans for 2020
These Are the 4 Best Medicare Advantage Plans for 2020

Medicare Advantage customers themselves rate these plans highest.

The 10 Most Commonly Stolen Vehicles in America
The 10 Most Commonly Stolen Vehicles in America

A new model parks atop the list of vehicles that thieves love to pilfer.

7 Ways to Boost Your Credit Score Fast
7 Ways to Boost Your Credit Score Fast

Your financial security might soon depend upon the strength of your credit score.

11 Household Items That Go Bad — or Become Dangerous
11 Household Items That Go Bad — or Become Dangerous

When you get the impulse to stockpile these everyday items, pay close attention to their expiration dates.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

These jobs pay more than the typical job in the U.S. — and no bachelor’s degree is required.

5 Ways to Get Amazon Prime for Free
5 Ways to Get Amazon Prime for Free

Hesitant to drop $119 a year on an Amazon Prime membership? Here’s how to get it for free.

10 Reasons Why You Should Actually Retire at 62
10 Reasons Why You Should Actually Retire at 62

If you can, here are several good reasons to retire earlier than we’re told to.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

14 Things That Are ‘Free’ With Medicare
14 Things That Are ‘Free’ With Medicare

These services could save you money and help prevent costly health problems.

5 Keys to Making Your Car Last for 200,000 Miles
5 Keys to Making Your Car Last for 200,000 Miles

Pushing your car to 200,000 miles — and beyond — can save you piles of cash. Here’s how to get there.

26 States That Do Not Tax Social Security Income
26 States That Do Not Tax Social Security Income

These states won’t tax any of your Social Security income — and in some cases, other types of retirement income.

5 Things That Make Life More Meaningful for Retirees
5 Things That Make Life More Meaningful for Retirees

Retirees agree: These are the things that give them purpose and fulfillment in their golden years.

10 Things You Should Never Do With Bleach
10 Things You Should Never Do With Bleach

Does the pandemic have you reaching for bleach more than ever before? Learn the ins and outs of using this powerful disinfectant.

15 Amazon Purchases That We Are Loving Right Now
15 Amazon Purchases That We Are Loving Right Now

These practical products make everyday life a little easier.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.