IRS makes 2012 inflation, cost-of living adjustments

The IRS is increasing the 2012 value of a string of tax credits and deductions to keep up with inflation, the agency announced Thursday.

The increases will affect tax provisions used by both wide and narrow swaths of the population, including the standard deduction and the estate tax.

Married couples will see a $300 hike in their standard deduction next year, up to $11,900, while heads of household can claim an $8,700 deduction, an increase of $200.

At $5,950, single taxpayers and married couples filing will receive a standard deduction that is precisely half that of jointly-filing married couples.

In all, roughly two-thirds of taxpayers use the standard deduction, with the rest generally itemizing their deductions.

For 2012, the thresholds for individual tax rates will also be tweaked. In the example cited by the IRS, a jointly-filing married couple will rise from the 15 percent tax bracket to 25 percent at $70,700, instead of the current $69,000.

The agency also announced higher maximum payouts for the Earned Income Tax Credit ($5,891), which is aimed at low- and middle-income taxpayers. And the estate tax exemption also ticked up, from $5 million to $5.12 million.

The current estate tax level was hashed out in the tax-cut compromise at the end of 2010, and the exemption is set to move to $1 million at the end of next year.

In a separate announcement, the IRS also said it was making cost-of-living adjustments for certain retirement plans.

For instance, the contribution limit for 401(k)s will rise to $17,000 next year, up from $16,500. 

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