There are some significant tax related changes coming into effect which impact tax brackets, the standard deduction, retirement account contribution limits, and estate taxes.
Each year, the Internal Revenue Service (IRS) adjusts the federal income tax brackets based on the prior year’s inflation. This is an attempt to prevent bracket creep which occurs when a tax filer enters a higher bracket and pays more in federal income tax but - due of inflation - didn’t experience an increase in real income (income after accounting for inflation).
Last year, the adjustment was particularly high at 7.1%. This year’s 5.4% adjustment is lower, but still quite large relative to recent years. The official release from the IRS can be found here and a Wall Street Journal summary can be found here. Note, this does not change the tax rates, only the amount of income required for the marginal dollar of income to move into a new, higher tax bracket.
In addition to raising the tax brackets, the standard deduction was also raised by 5.4%. For individuals, it will be $14,600 and for jointly filing married couples it will be $29,200.
Another important adjustment relates to the contribution limits of 401ks and IRAs. The 401k and TSP contribution limit was raised to $23,000 (up $500 from last year) and the IRA contribution limit was raised to $7,000 (also up $500 from last year).
Finally, the annual limit on tax-free gifts was raised to $18,000 for 2024 (up $1,000 from last year). These types of gifts are not counted toward the lifetime maximum, and neither the gift giver nor receiver is taxed on this gift.
The below tables show the 2024 federal income-tax rates and brackets for single filers and couples that are married filing jointly.
For some clients, we have also discussed legislation that was passed late in 2022 related to Required Minimum Distributions (RMDs). The law raised the age at which individuals were required to begin taking withdrawals from their tax deferred retirement accounts from age 72 to age 73.
At Arthur Stein Financial, we are not Certified Public Accountants or tax experts. Most tax related matters should be discussed with your CPA or tax preparer. However, we feel it is important to keep our clients apprised of important changes that can affect their financial picture.
This is for educational purposes only. To learn more about the topics mentioned and if they are suitable for you, consult an appropriate professional. Tax laws can change at any time.
Any information provided in this presentation has been prepared from sources believed to be reliable, but is not guaranteed and is not a complete summary or statement of all available data necessary for making an investment decision. Any information provided is for information purposes only and does not constitute a recommendation.
Arthur Stein and Arthur Stein Financial, LLC are not authorized to give legal or tax advice. For information on your specific situation, please consult your tax advisor regarding any tax implications and your attorney for legal implications. As required by the US Treasury Regulations, you should be aware that this presentation is not intended to be used and it cannot be used for the purposes of avoiding penalties under federal tax laws.
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