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5 higher taxes for wealthy taxpayers

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Reduced deductions, exemptions
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Reduced deductions, exemptions © Graham Prentice/Shutterstock.com

Reduced deductions, exemptions

Wealthier taxpayers also have to do extra math to figure out how much of their personal exemptions and itemized deductions they will lose.

The American Taxpayer Relief Act reinstated the phaseout of these tax reduction amounts, again based on adjusted gross income. The trigger thresholds for 2014 taxes are more than $152,525 if married filing separately; $254,200 if single; $279,650 if head of household; or $305,050 if married filing jointly or a qualifying widow/widower.

Personal exemptions -- $3,950 each for yourself, spouse and any dependents for the 2014 tax year -- help reduce your adjusted gross income to a lower taxable income amount. This amount is reduced incrementally once your income exceeds your filing status income amount. The personal exemption phaseout, or PEP, could zero out the exemptions amount for some taxpayers.

Wealthier taxpayers who itemize deductions could see that amount cut, too. If they hit the income thresholds, they will have to make a series of Schedule A calculations to determine if they lose some of the value of common deductions, such as mortgage interest, state and local taxes paid and charitable donations.

Unlike the exemptions phaseout, the itemized deductions cannot be completely eliminated. However, they could be reduced enough to cause wealthier filers some tax pain.

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