2006 changes in standard deduction, personal exemptions

The standard deduction and personal exemption amounts will increase for 2006. These increases can produce lower taxes by lowering the taxpayer’s taxable income.

Single taxpayers and married taxpayers filing separately will see a $150 increase over 2005 in their standard deduction, to $5,150, while the standard deduction for joint filers will increase by $300 to $10,300. Heads of households will see an increase in their standard deduction of $250, to $7,550.

The additional standard deduction for those age 65 or older or who are blind, however, will remain the same as in 2005: $1,000 for married individuals and surviving spouses, and $1,250 for single filers. The personal exemption amount will go up in 2006 by $100 to $3,300.

These inflation adjustments can add up over time. For example, since the 1987 tax year, the standard deduction for joint filers has increased more than two- and-a-half times, from $3,780 to the anticipated $10,300 amount for 2006.

For 2006, married couples filing jointly will begin to lose some of the value of any itemized deductions when their adjusted gross income exceeds $150,500.

Likewise, they will begin to lose some of the value of their personal exemptions when their adjusted gross income exceeds $225,750. Starting next year, however, some relief from this “stealth tax” will begin to kick in.

The "kiddie" standard deduction, used on the returns of children who are claimed as dependents on their parents' returns, increases to $850 in 2006.

The tax code only allows the gift tax exemption to rise when the inflation adjustment would produce an increase of $1,000 or more. The last increase occurred at the beginning of 2002, when the exemption increased to its current $11,000.

This year’s inflation figures just push the amount above the next threshold, so the exemption will rise to $12,000 for 2006.

The deduction for Qualified Higher Education Tuition and Related Expenses is scheduled to terminate for tax years beginning after December 31, 2005.