It looks like 2010 likely won’t be all that different from 2009 – at least when it comes to taxes.
Each year, by law, the dollar amounts for certain tax provisions are indexed for inflation. But inflation hasn’t budged all that much (that’s good, right?) which means that a lot of nothing is happening. Here’s an update on next year’s numbers released by the IRS earlier this month:
- Personal and dependency exemptions remain at $3,650.
- The standard deduction for married filing jointly remains at $11,400.
- The standard deduction for single taxpayers and married filing separately remains at $5,700.
- The standard deduction for head of household increases by $50 to $8,400.
- The annual gift tax exclusion remains unchanged at $13,000.
The big kicker, of course, is what the heck is going on with the estate tax? As of now, nobody knows for sure.
Taxpayer asks:
Hi,
My husband and I have decided to open a bank account for our son. We’re going to give him an allowance every week. He gets to keep part of it and put the rest in the bank. If he saves a certain amount, he gets a bonus allowance. The point is to teach him to save.
My question for you is how do we report the money we’re giving him? And does he need to file taxes for the bank account? He is 8 years old and his allowance is $5 per week.
Taxgirl says:
What a great idea! I may have to try that one myself…
There are no income tax consequences to your son for an allowance; similarly, there are no income tax consequences to you for giving an allowance.
Technically, there could be gift tax consequences since an allowance is really a gift – but doing the math here, I’m guessing it’s rare that, together with your other gifts to your son, you hit gift tax type numbers ($13,000 per person per year for 2009).
As to the bank account, interest reported to your son might be subject to income tax. However, the amounts that you’re talking about are small enough that they likely won’t be… Assuming that you claim your son as a dependent and he has no earned income, he can earn up to $950 in unearned income (like interest and dividends) income tax free for 2009 for federal purposes. That amount is the equivalent of the personal exemption. There’s no need to report that income or file a return.
The next $950 would be taxable at your son’s own tax rate. After that, using the “kiddie tax” rules, he would be taxed at your (meaning his parents’) marginal tax rate. It sounds like neither of these situations would apply to you but I wanted you to be aware of them.
There are additional rules and exceptions which apply to the “kiddie tax” rules – I’m not going to discuss them here other than to say that the rules are much different if your child has earned income or significant unearned income. If that’s the case, you’ll want to consult with your tax professional.
It’s also worth pointing out that these are the federal rules – your state may have different rules. Again, consult with your tax professional.
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
Have a question? Ask the taxgirl! – Now on Facebook at http://www.facebook.com/taxgirl
As the economy continues on its wild ride, the IRS has announced a series of adjustments for tax brackets and other provisions for the 2009 tax year. These adjustments, in response to inflation, are required by law.
Note that these adjustments will affect your 2009 tax return, normally filed in early 2010. Your 2008 tax return (filed in 2009) is not affected.
Here are a few key tax provisions which have been adjusted for inflation:
Personal and Dependency Exemptions. Personal exemptions and those available for dependents will increase $150 to $3,650.
Standard Deductions. The standard deduction for married couples filing jointly will increase by $500 to $11,400. The standard deduction for singles and married couples filing separately will increase by $250 to $5,700. The standard deduction for head of household will increase by $350 to $8,350.
Kiddie Tax Threshold. The threshold for the kiddie tax will increase by $50 to $950.
Tax-bracket thresholds. Tax-bracket thresholds will increase for each filing status. I’ll post the new tax tables as soon as I can.
Earned income tax credit (EITC). The maximum EITC for families with two or more children will increase by $204 to $5,028. The income threshold in order to qualify will also rise: for joint return filers with two or more children, the threshold will be $43,415.
Gift Tax. The annual gift exclusion will rise by $1,000 to $13,000.
401(k) Contribution Limit. The 401(k) contribution will rise by $1,000 to $16,500.
It’s worth noting that there are some other adjustments, including those for retirement plans/contributions. Keep watching for specific information.
