The new year brings significant changes to the U.S. tax system. Starting in 2024, updates to the tax code will impact millions of Americans. These adjustments, driven by new laws and inflation, affect everything from take-home pay to retirement savings. Here’s what you need to know to stay ahead and plan effectively.

 

Key Updates for 2024 Tax Season:

 

Full 2024 Tax Brackets

The IRS has updated the tax brackets for inflation, ensuring income thresholds are adjusted upward by about 5.4% to prevent “bracket creep.”

Marginal rates: For tax year 2024, the top tax rate remains 37% for individual single taxpayers with incomes greater than $609,350 ($731,200 for married couples filing jointly).

The other rates are:

35% for incomes over $243,725 ($487,450 for married couples filing jointly)
32% for incomes over $191,950 ($383,900 for married couples filing jointly)
24% for incomes over $100,525 ($201,050 for married couples filing jointly)
22% for incomes over $47,150 ($94,300 for married couples filing jointly)
12% for incomes over $11,600 ($23,200 for married couples filing jointly)

The lowest rate is 10% for incomes of single individuals with incomes of $11,600 or less ($23,200 for married couples filing jointly).

These changes mean more of your income could be taxed at lower rates, potentially reducing your tax liability.

 

Higher Standard Deduction

The standard deduction is increasing again:

• Single Filers: $14,600 (up from $13,850 in 2023)

• Married Filing Jointly: $29,200 (up from $27,700 in 2023)

• Head of Household: $21,900 (up from $20,800 in 2023)

This higher deduction simplifies tax filing for many and reduces taxable income. However, it may discourage itemizing deductions, including those for charitable contributions.

 

Increased Retirement Contribution Limits

The government has raised the limits for retirement account contributions to encourage savings:

• 401(k), 403(b), and 457 Plans: Contribution limit increases to $23,000 (up from $22,500 in 2023). Catch-up contributions for those 50+ remain at $7,500, allowing a total of $30,500.

• IRAs: Limit increases to $7,000, with an additional $1,000 catch-up contribution for those aged 50+.

By contributing more to these accounts, you can reduce your taxable income now and build a stronger financial future.

 

Alternative Minimum Tax (AMT) Exemption

The AMT exemption amounts for 2024 have increased:

• Single Filers: $85,700 (phases out at $609,350)

• Married Filing Jointly: $133,300 (phases out at $1,218,700)

 

Earned Income Tax Credit (EITC)

The maximum EITC for 2024 is $7,830 for taxpayers with three or more qualifying children. Income phaseout thresholds have also been adjusted upward, benefiting more families.

 

Foreign Earned Income Exclusion

The foreign earned income exclusion increases to $126,500 in 2024, up from $120,000 in 2023.

 

How to Prepare for These Changes

1. Review Your Withholdings

Check your paycheck withholdings to ensure they align with the new tax brackets and standard deduction. A tax estimate from Progressive Tax Associates can help you determine if you’re paying enough throughout the year to avoid underpayment penalties.

 

2. Maximize Retirement Contributions

If your budget allows, take advantage of the increased contribution limits for 401(k)s and IRAs. This not only lowers your taxable income but also strengthens your retirement savings. For those nearing retirement, catch-up contributions offer a significant boost.

 

3. Adjust Your Charitable Giving Strategy

With the higher standard deduction, fewer people may itemize. Consider “bunching” donations (making larger contributions every other year) or using donor-advised funds to maintain tax benefits for charitable giving.

 

4. Reassess Your Investments

Tax bracket changes may impact your investment strategy. Review your portfolio to ensure it’s tax-efficient and consider strategies like tax-loss harvesting to offset gains.

 

5. Consider Roth Conversions

The adjusted tax brackets may provide an opportunity to convert traditional IRA funds to a Roth IRA at a lower tax cost. This can be a smart move if you expect to be in a higher tax bracket later or want to reduce future required minimum distributions.

Tax laws can change quickly. Keep up to date by subscribing to IRS updates or following trusted financial news sources. Consulting with a tax professional can also help tailor strategies to your specific needs.The 2024 tax changes bring both opportunities and challenges. By understanding these updates and adjusting your financial strategies, you can minimize your tax burden and make the most of the new regulations. Every taxpayer’s situation is unique, so consider seeking advice from a qualified tax professional. Staying proactive will help you navigate these changes and optimize your financial future. If you’re ready to take control of your tax situation, consult a professional today and start planning for a successful 2024!