December 10, 2023
It is crucial for individuals to engage in strategic tax planning with their financial professionals, particularly considering the changes to the standard deduction and tax brackets for the year 2024. These modifications, affecting filers who do not itemize their deductions, will only be reflected in the tax returns filed in early 2025.
The Internal Revenue Service has elevated the thresholds for its seven tax brackets by 5.4% in 2024. This adjustment implies that a single person can now earn up to $609,350 before facing taxation at the highest rate of 37 percent. Understanding and leveraging these changes can significantly impact one’s tax liability.
In the context of the broader economic landscape, the Federal Reserve’s efforts to mitigate inflation have influenced recent adjustments in the consumer price index, which is intricately linked to tax changes. Despite some success in curbing inflation, the index continues to rise, albeit at a slower pace.
Moreover, the IRS routinely adjusts various figures in the tax code to account for inflation. For instance, the maximum Earned Income Credit for low-income workers with children has increased to $7,830, marking a $400 raise. Additionally, workers now have the opportunity to contribute more funds to health savings accounts, with the limit set at $3,200.
Estate planning considerations are also paramount, given the rise in the estate tax threshold. Estates valued under $13.61 million are now exempt from taxes, up from $12.92 million in 2023. Similarly, the gift tax threshold has increased to $18,000, allowing for larger tax-free gifts.
In light of these changes, collaborating with a financial professional becomes not only advantageous but also imperative. A skilled professional can help individuals navigate the complexities of the evolving tax landscape, identify opportunities for tax savings, and work towards aligning their financial strategies with the current regulatory environment. This proactive approach to tax planning is essential for helping to optimize financial outcomes and managing tax burdens.
For the 2024 tax year, 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 marginal tax rates are:
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by FMeX.
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