Key 2024 Tax Changes

As the calendar turns to 2024, the IRS has implemented significant tax changes set to have a widespread impact, affecting a diverse range of taxpayers, including individuals and business owners. Critical updates include tax bracket modifications, standard deduction increases, revised limits for healthcare savings accounts, and gift tax exclusions.

In this quick guide, we delve into the specifics of the 2024 tax changes, providing a concise yet comprehensive overview of what’s new and how it might affect your finances.

Tax Brackets

The IRS has adjusted the income thresholds for 2024 tax brackets by 5.4% due to inflation, measured using the Consumer Price Index (CPI). This index reflects changes in the cost of typical consumer goods and services, influencing tax bracket adjustments annually. This update follows a substantial 7% expansion in the tax brackets in the previous year, reflecting of the higher inflation experienced at that time.

The 2024 marginal tax brackets are:

• 37% for incomes over $609,350 (individuals) and $731,200 (married, filing jointly)
• 35% for incomes over $243,725 (individuals) and $487,450 (married, filing jointly)
• 32% for incomes over $191,950 (individuals) and $383,900 (married, filing jointly)
• 24% for incomes over $100,525 (individuals) and $201,050 (married, filing jointly)
• 22% for incomes over $47,150 (individuals) and $94,300 (married, filing jointly)
• 12% for incomes over $11,600 (individuals) and $23,200 (married, filing jointly)
• 10% for incomes of $11,600 or less (individuals) and $23,200 or less (married, filing jointly)

Specific tax planning strategies may become more or less effective with the updated brackets. For instance, if you’re on the cusp of a higher tax bracket, increasing contributions to tax-deferred retirement accounts like a 401(k) or IRA might be beneficial to reduce your taxable income. If you own a business, the new brackets could influence business decisions, such as how much salary to pay yourself versus business income left in the company.

Standard Deduction 

In 2024, the standard deduction, which most Americans opt for over itemizing, will increase. Married couples filing jointly can deduct $29,200, up by $1,500 from 2023. Single taxpayers and married individuals filing separately are eligible for a $14,600 standard deduction, an increase of $750. Meanwhile, heads of households can take advantage of a $21,900 standard deduction, which is $1,100 higher than the previous year.

A higher standard deduction means taxpayers may significantly reduce their taxable income. This can potentially lower your overall tax liability or even place you in a lower tax bracket. As always, the impact will vary based on each taxpayer’s financial situation.

Changes to AMT Exemption

For the tax year 2024, the IRS has set the Alternative Minimum Tax (AMT) exemption amount at $85,700 for single filers and $133,300 for married couples filing jointly. A phase-out begins at $609,350 and $1,218,700 respectively. This is an increase from 2023. It’s recommended that you consult with a tax professional who can provide personalized advice and strategies to manage or mitigate the impact of AMT by considering your unique financial situation.

Higher FSA, HSA Contributions

In 2024, the IRS has increased limits for Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs), both tax-advantaged accounts for healthcare expenses. FSA contributions will rise to $3,200, up from $3,050. For HSAs, the contribution limit for single taxpayers will be $4,150 (a 7.8% increase), and for families, it will be $8,300 (a 7.1% increase). The additional $1,000 contribution allowed for individuals over 55 in HSAs remains unchanged.

Gift Tax Limit 

The IRS has raised the annual gift tax exclusion to $18,000, up by $1,000 from 2023. This exclusion allows individuals to gift up to $18,000 per recipient tax-free without impacting their lifetime gift and estate tax exemption, which is $13.61 million in 2024. Married couples can jointly gift up to $36,000 per recipient annually. This increase benefits for those looking to give more without incurring a gift tax.

Retirement Contribution Limits

For the 2024 tax year, there have been significant updates to retirement contribution limits. The maximum amount an employee can contribute to a 401(k) plan has been increased to $23,000, a rise from the previous limit of $22,500 in 2023. However, the catchup contribution amount for those aged 50 and over remains unchanged at $7,500. Additionally, contributions to a Roth IRA have also seen an increase. Individuals can now contribute up to $7,000, up from $6,500 in the 2023 tax year. For those who are 50 or older, the contribution limit is $8,000, which is an increase from the previous $7,500 limit. It’s important to note that these contribution limits are subject to restrictions based on your tax filing status and Modified Adjusted Gross Income (MAGI), which may limit the amount you can contribute.

These updates present both opportunities and challenges for taxpayers. By staying informed and adaptable, you can leverage these tax code adjustments to your advantage in 2024 and beyond. Contact Wilke CPAs & Advisors to discuss your tax planning strategy.