Every year, the IRS adjusts various dollar limits for inflation. Because inflation has been low for the past several years, these adjustments have usually been small. Here are the most important adjustments for 2013:
IRS Standard Mileage Rate: Effective January 1, 2013, the optional standard mileage rate that taxpayers can use to calculate the deductible costs of operating an automobile for business is 56.5 cents per mile. This rate is for business use of a car, van, pickup, or panel truck. The new 2013 rate is an increase of one cent per mile over the rate in effect in 2012.
Social Security Wage Base: The Social Security wage base--that is, the amount of wage or self-employment income upon which Social Security taxes must be paid--increases to $113,700; up from $110,100 in 2012.
IRA Contributions: The tax deductible amount that can be contributed to an IRA goes to $5,500, up from $5,000 in 2012.
Retirement Plan Contributions: Employees may contribute up to $17,500 in elective deferrals to 401(k), 403(b), and 457(b) plans, up from $17,000 in 2012. The same limit applies to self-employed individuals who have solo 401(k) plans. The annual maximum contribution to such plans (employee contributions and employer matching contributions combined) is $51,000, up from $50,000 in 2012. The annual catch-up contribution limit under these plans for those age 50 and over is unchanged at $55,000.
The contribution limitation for SIMPLE IRAs increases is $12,000 for 2013, up from $11,500 in 2012.
Gift tax exclusion: Up to $14,000 can be given to any single individual without needing to report the gift to the IRS, up from $13,000 in 2012.
Health Savings Accounts: If you have a health savings account (similar to a medical IRA), you must pair it with a high deductible health plan. For 2013, the deductible for single coverage must range from $1,250 to $3,250 with an annual out-of-pocket maximum of $6,250. For family coverage, the deductible range is $2,500 to $6,450 with an annual out-of-pocket maximum of $12,500.
"Kiddie Tax" Exclusion: Children may earn up to $1,000 in unearned income tax-free in 2013, up from $950 in 2012. This applies to all children under 18 years of age, and those up to 23 who are full-time students and whose earned income does not exceed 50% of their annual living expenses.
Effective date: November 2012