Looking Ahead: 2024 Tax Updates

Tax laws don’t just change when Congress passes legislature. Every year the Internal Revenue Service updates its rules and regulations in order to stay current with the evolving nature of personal income. For 2024 the IRS is making a number of adjustments to account for recent inflation. We’ve highlighted a few notable provisions below.

For a complete summary of tax code changes, please visit the IRS website linked here.

The standard deduction will increase

The most notable item among the changes is an increase in the standard deduction. This applies to everyone across board, no matter how much income you earn next year. When you, or your household, file your annual income tax return, the new standard deduction will reflect wage inflation from the previous year.

The standard deduction for married couples filing jointly for tax year 2024 rises to $29,200, an increase of $1,500 from tax year 2023. For single taxpayers and married individuals filing separately, the standard deduction rises to $14,600 for 2024, an increase of $750 from 2023; and for heads of households, the standard deduction will be $21,900 for tax year 2024, an increase of $1,100 from the amount for tax year 2023.

Income tax thresholds are going up

Also indexed to inflation are the income thresholds for which each tax bracket kicks in. While this doesn’t change the tax rates, themselves, this will allow a bit more maneuverability for strategies like Roth conversions, if that’s a component of your financial plan.

37% for incomes over $609,350 ($731,200 for married couples filing jointly)
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 alternative minimum tax will apply to even fewer people

The alternative minimum tax generally doesn’t touch many incomes after its revisions in the 2017 TCJA, but the phase-out threshold will increase yet again in 2024, also due to being indexed to inflation. The threshold for single-payers will increase from $578,150 to $609,350 next year, and from $1,156,300 to $1,218,700 for married couples filing jointly. Again—this generally won’t affect many household incomes, but is bit more cushion for those exercising stock options, realizing a long-term capital gain, or experiencing another individual liquidity event.

The estate tax exemption will increase again

Taxpayers saw a significant estate tax exemption increase in 2017 when the TCJA raised the threshold from $5,600,000 to $11,180,000 (double for married couples). This, too, was indexed to inflation and grew to $12,920,000 in 2023. That figure will increase yet again for individuals in 2024 to $13,610,000.

Gift exemptions are set to increase as well

For those assisting family members with college tuition or taking a proactive approach to legacy planning, the annual exclusion for gifts will increase in 2024. Transferring funds will now no longer be subject to taxation up to $18,000, an increase from the previous threshold of $17,000.

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