Indexing exemptions for inflation. Each year, the Internal Revenue Service adjusts the value of an exemption based on inflation(and rounded to the nearest $50). In a recent year, if the exemption was worth $3,100 and inflation was 4.7 percent, what would be the amount of the exemption for the upcoming tax year?
To find the amount of the exemption for the upcoming tax year, you need to adjust the current exemption amount for inflation. Here's how you can calculate it using the provided information:
Step 1: Calculate the inflation adjustment
Multiply the current exemption amount by the inflation rate:
Inflation adjustment = Current exemption amount * Inflation rate
Inflation adjustment = $3,100 * 4.7% = $145.70
Step 2: Round the inflation adjustment to the nearest $50
Since the IRS rounds the inflation adjustment to the nearest $50, you need to round $145.70 to the nearest $50. To do that, follow these steps:
Divide the inflation adjustment by 50, round it to the nearest whole number, and then multiply it by 50:
Rounded inflation adjustment = Round(inflation adjustment / 50) * 50
Rounded inflation adjustment = Round($145.70 / 50) * 50
Rounded inflation adjustment = Round(2.914) * 50
Rounded inflation adjustment = 2 * 50
Rounded inflation adjustment = $100
Step 3: Calculate the new exemption amount
Add the rounded inflation adjustment to the current exemption amount:
New exemption amount = Current exemption amount + Rounded inflation adjustment
New exemption amount = $3,100 + $100
New exemption amount = $3,200
Therefore, the amount of the exemption for the upcoming tax year would be $3,200.