However there are still several numbers in the tax code that have remained unchanged over the years. There does not seem to be any rhyme or reason for why these numbers have not been indexed. Most noticeable of these are the exemption amounts in the calculation of taxable Social Security and Railroad Retirement benefits, the rental loss allowance and phase-out, the maximum capital loss deduction, and the dreaded Alternative Minimum Tax (AMT) exemption amounts.
What brought this topic to my attention was an item in a “tax quip” email from Tax Mama. The email referenced an article from the March-June 2003 issue of Enrolled Agent Doug Thorburn’s Wealth Creation Strategies newsletter on this very subject. His quarterly newsletters, archieved on his tax practice website, are indeed interesting reading.
Two sets of numbers figure in to the calculation of taxable Social Security and Railroad Retirement. The initial exemption amounts are $25,000 for single taxpayers and $32,000 for married couples. Plus up to 85% of benefits can be taxed as income in the calculation exceeds $34,000 for singles and $44,000 for couples. The initial exemption was instituted in 1984 when SS and RR benefits first became taxable, and the second set of numbers came into play in 1994 when the maximum taxable benefit was increased from 50% to 85%. Doug’s 2003 article reported that had these numbers been indexed for inflation since day one the adjusted numbers for tax year 2002 would have been $44,422 and $56,861 and $60,415 and $78,183.
FYI, in addition to being an Enrolled Agent Doug Thorburn is also a pioneering author and educator researching early-stage alcoholism and other drug addiction problems. His research explains each sign of alcoholism, or symptom of alcoholism or prescription drug addiction. His books are acclaimed not only for their powerful self help qualities, but also they contribute to a variety of education programs. His “Prevent Tragedy” website is dedicated to helping people understand why we need to identify alcohol and other drug addicts, how to do so and, most important, what can be done to prevent tragedy.