In 2013, the personal exemption for each dependent will be $3,900, up from $3,800 in 2012, the Internal Revenue Service said. But with the phaseout, which begins at $250,000 for individuals and $300,000 for married couples filing jointly, the exemptions will be worth less for wealthier Americans in reducing tax liability.
The same holds true for them when it comes to charitable contributions, the interest you pay on your mortgage and other deductions.
Also at those higher income levels, the top rate for capital gains from the sale of those assets held more than a year, rises to 20 percent. For those earning less, the capital gains rates remain at 0 percent and 15 percent, the top rate in 2012. And the tax rate on the biggest estates is rising to 40 percent.
And for the wealthiest estates, the exclusion amount, which the IRS defines as “the total amount exempted from gift and-or estate taxes,” rises to $5,250,000. Married couples can double the exclusion with proper estate planning.
Meanwhile, middle-income taxpayers might get “a sense of relief” that the alternative minimum tax has been patched permanently, said Mark Steber, chief tax officer with Jackson Hewitt Tax Services. The tax had threatened to swallow up more middle-income taxpayers. Going forward, it will be indexed to inflation. In 2013, the exemption amount is $51,900 for individuals and $80,800 for married couples filing jointly.
Tax credis are set
The IRS set the earned income tax credit this year at $6,044 for families with three or more children. That's a $153 increase from 2012.
The fiscal cliff bill extended tax deductions and credits that were due to expire for the most part, some for as long as five years.
Among them: the tuition and fees deduction that allows college students or their parents to deduct college tuition and fees up to $4,000. Elementary and secondary teachers can deduct up to $250 for out-of-pocket expenses for things for their classroom.
And for parents with children, the $1,000 child tax credit is permanent.