Your Taxes May Go Down Thanks To Prices Going Up

Don’t cry over the price of milk spilling upwards. It could actually mean that you pay lower taxes.

MoneyTalksNews explains how while inflation raises the prices on everything from milk to gas to gumdrops, it’s also going to cause the IRS to change things in your favor. Every year they adjust the tax brackets for inflation to fight off the effects when inflation-indexed wages rise. Otherwise people might be pushed into a higher, more burdensome tax bracket and have to pay more taxes than they should

The tax burden could be adjusted several ways. The amount allowed for personal exemptions is predicted by tax publisher CCH to rise to $3,800 from $3,700, making it $100 less you’ll have to pay taxes on. The standard deduction is predicted to rise by $300 for married couples filing jointly and $150 for single filers. But the largest difference will be in the brackets. The first two brackets are predicted to rise by $200 and $1,050, respectively, while the top bracket could see a bump up of $9,201.

“While inflation adjustments apply to all taxpayers, those who make the most benefit the most,” writes MoneyTalksNews. “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.”
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How the Price of Milk Might Lower Your 2012 Taxes [MoneyTalksNews]

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  1. agent 47 says:

    Unless your a poor schmuck who lives in Albany county, NY. You’ll be seeing a 19% increase in taxes AND an increase in prices.

  2. mauispiderweb says:

    i wish i could deduct the cost of my metrocard … traveling to and from work costs me over $1000 per year.

    • agent 47 says:

      That’s crazy. Why not just get a motorcycle?

      • mauispiderweb says:

        There’s no way I’d drive a motorcycle on the streets of NYC! I’d ride on the back of one, though and chip in for gas.

      • Rebecca K-S says:

        How is that crazy? That’s how much my unlimited monthly pass in Chicago cost me a year (it’s a bit more now).

        • agent 47 says:

          Pffft, sounds crazy to me, but then again, I live in a city that has a bus as the only form of public transportation.

          • Rebecca K-S says:

            Certainly, it’s a lot more than I’d pay for public transit in my bus-only city of 120k, but the MTA is an incredible, expansive service that’s sure as hell worth $80 a month.

      • consumeristjohnny says:

        What do you think a motorcycle would cost? $1000 is nothing. Its’s $83.33 a month. Insurance on the motorcycle would be far worse, and parking would easily surpass that. I have never understood people who have mass transit complaining. I would gladly stop driving if there were any way for me to get from home to office by bus, train or subway.

        • agent 47 says:

          What?! Motorcycle insurance costs a little over $100 on average, even less if they get a moped. Over time the thing would pay for itself.

          • Loias supports harsher punishments against corporations says:

            What are the costs to park in NYC? Add to that fuel and maintenance, and finally the costs to store the vehicle and you can see how it might not be the best choice. If the person lives in an apartment with a garage, he may have to pay well over $1000 a year to house the motorcycle at his apartment (again, totally depends on his specific situation in NYC).

            • agent 47 says:

              I drive my car to work, park in the parking lot, drive home. I only pay for the car, gas and insurance. This whole paying for storage and parking is foreign to me.

              • PlumeNoir - Thank you? No problem! says:

                Wish that was still the case for me. I have a $40 monthly parking pass for the garage across the street. And when I go to the other offices, I usually have to pay extra to park there, too.

              • kobresia says:

                It’s pretty typical in the downtown of larger cities, though. Parking is a precious commodity, and it’s almost never “free”…it can be a perk, or validated by someone you’re doing business with, but it’s rarely just there for the taking.

        • kobresia says:

          My insurance for riding a motorcycle is $190/year (CO, on a 9-year-old BMW 650 enduro, with $1k deductible comprehensive, which accounts for the lion’s share of that premium). The type of bike matters, a sportbike would be really spendy, but a scooter, cruiser, or dualsport is going to be pretty cheap to insure because reckless speed (which sportbikes are built for) is what kills.

          A smaller motorcycle or scooter (which would be fine for puttering around a city, since speeds aren’t very high) could be had for not a whole lot of money, maybe $2-3k for a reasonably good used one.

          The difference between spending $1,000/year on the metro and spending a couple thousand on a motorcycle would be that at the end of 2-3 years, you have transportation that’s paid for and only requires trivial upkeep costs, whereas with the metro, it’s still at least $1k per year and always going to be that much. Plus all the crowding, being bound to schedules, and other delays that waste time, which is money (or sanity)!

          Parking is the real challenge, but around Denver, I’ve seen people chaining scooters and mopeds to bicycle racks. I’m not sure if that’s really legal here or in other cities, but that seems to be rather prevalent. Legitimate parking tends to be much cheaper for motorcycles, too.

      • StarKillerX says:

        it’s not that crazy actually since most people who drive likely pay more then that each year.

        The most consistant number I’ve found for average drive to work is about 16 miles and if we use 24 mpg as the average (can’t find anything on this so I pulled it out of my ass but if anything I think it’s a high estimate) and if we use $3.50 for the price per gallong of gas (a little lower then it was last I heard) and once we do the math we find that the driver would pay $113.75 for gas alone.

    • ARP says:

      Does your work have a transit benefit program? My work deducts $X per month pre-tax and loads it on to my CTA card.

    • floyd fan says:

      Driving to and from work costs me over $3000 per year.

    • Coelacanth says:

      Ask about TransitChek. If you don’t have that program at work, lobby for it.

      Our company has this benefit, and you can elect to pay for your monthly (or yearly) metrocard with pre-tax dollars.

  3. crashfrog says:

    Inflation-adjusted wages aren’t rising, because inflation is almost the lowest it’s ever been. Increased prices for commodities aren’t inflation – it’s increased demand for commodities. (Amazing how the first thing people learn in economics – supply and demand – is also the first thing they seem to forget.)

    • Loias supports harsher punishments against corporations says:

      “Increased prices for commodities aren’t inflation “

      I’d love to hear the explanation for that statement. What is inflation, if not the increase in costs for the commodies I buy?

  4. crashfrog says:

    Inflation-adjusted wages aren’t rising, because inflation is almost the lowest it’s ever been. Increased prices for commodities aren’t inflation – it’s increased demand for commodities. (Amazing how the first thing people learn in economics – supply and demand – is also the first thing they seem to forget.)

  5. Tim says:

    But tax brackets don’t tax you on your entire income. Well, sort of … it’s hard to explain.

    Let’s say there’s a tax bracket for people earning more than $100,000. When you go from $100,000 to $100,001, your tax rate doesn’t suddenly increase. The new bracket is on all of your income ABOVE $100,000. So $100,000 and below is still taxed at the same rate, but the extra dollar is taxed at a higher rate.

    Make sense?

    • Rebecca K-S says:

      I think everyone here already knows that. Why are you explaining it? There’s nothing in the article to indicate that Ben or the original author don’t understand the marginal tax rates.

      • Nigerian prince looking for business partner says:

        I was wondering the same thing. I think most people here are smart enough to know the difference between marginal and effective tax rates.

      • dolemite says:

        Better to have TMI than not enough!

      • Tim says:

        Ehh, just wasn’t sure if it was clear to everyone. And the post’s discussion about brackets wasn’t very thorough.

    • TMN says:

      I’m always amazed at the number of people who seem to have no clue how this works. On multiple occasions I’ve been talking to supposedly educated people who make a claim along the lines of, “I’d just give money away to charity so I don’t bump up into the next tax bracket”.

      • AnthonyC says:

        And in most cases you’d be quite right, but not always. Some deductions and credits are only available to people making less than a certain amount, and *not* all of them phase out gradually.

  6. Nigerian prince looking for business partner says:

    And yet another year of individual health insurance premiums essentially having a tax penalty while group plans are tax free.

  7. Power Imbalance says:

    IRS adjusting your taxes on things like this down to make up for rising prices…. LOL LOL LOL LOL

  8. mianne prays her parents outlive the TSA says:

    Except when you live in a state/county which charges its full 9.25% sales tax on groceries; when prices rise, so do your taxes!

    • nybiker says:

      I know that here in NYC, where the total sales tax is 8.875%, groceries (generally food) are not taxed, but where are you that the total percentage rate is so high? I don’t mean to start a thread on tax rates and such, but damn, that is a high rate, food or no.

  9. Coelacanth says:

    I thought the CPI has been laughably low the last several years, despite virtually everything most normal people care about rising in cost…

    • dangermike says:

      Inaccurate for several years? It has been a complete fabrication since the introduction of owner equivalent rent almost 30 years ago.

  10. AEN says:

    I notice how the article cleverly avoids mentioning the AMT. Even the MoneyTalkNews examples avoid the AMT band.

  11. nocturnaljames says:

    yeah the government never cooks the numbers in their favor, like CPI. They are honest, really. And even though costs are going up, we should be grateful because a few cents of that raise we are going to save it tax breaks!

    • dangermike says:

      seriously.

      So I get to deduct an extra $150. That saves me, what, $20? $30? While inflation creeps up another 3-5% (while being reported at 1-2%)? Meaning in addition to the fact that *IF* I get a pay raise, it’ll be less than the increase in my cost of living. And meanwhile, I’m left paying probably $500-1000 more to maintain the same standard of living. But it’s all ok, because I get to give $20-30 less to the federal government. Un-f***-ing-real. This is like Pelosi telling us that unemployment creates jobs. It’s so completely devoid of rational sensibility that the only origin it could possibly have had is a politician or one’s ilk. I can’t believe nobody gets taken to task on statements like this. I said things this dumb at work, I would not have a job for long.

  12. levelone says:

    Oh, hey a PDT. I kind of miss those things.

  13. Elgog Partynipple says:

    In the example above, $100000/$190.00 = 19% less being paid. While $450000/$732.00 = 16.3%. So I don’t know where the $100000 income gets less of a tax break. It seems they get a 2.7% greater break?

    It’s just simple math.