Tax Law Changes for 2024 – What You Need to Know for Your Personal Finances
Personal finance is the task of managing one’s own money: how and where we spend, how we save, where we invest, and how we pay off debts.
The Internal Revenue Service recently unveiled annual inflation adjustments for over 60 tax provisions.
These changes help to prevent ‘bracket creep’, in which rising inflation pushes you into a higher tax bracket Some of the changes are inflation indexing, like the higher contribution limits for tax- advantaged retirement savings accounts.
Tax Brackets
The new tax law maintains seven individual income tax brackets – the thresholds are set to increase annually by the IRS to account for inflation. The bottom tax rate stays at 10 per cent, and the top rate rises to 37 per cent for singles with income over $609,350 ($731,200 if married or qualifying widow/widowers). Knowing your tax brackets can help you plan your finances to take advantage of the good years and ease the impact of bad ones. When you’re ready to do your taxes in April, SmartAsset’s free tax calculator can determine whether you will owe taxes or get a refund. We also link to vetted advisors in your area who can help you plan for the future and halve your paperwork.
Income Tax Rates
In most years, the IRS adjusts the income tax brackets, the standard deduction amount, limits for retirement savings and the phase-out range for the gift tax exclusion to account for inflation, and this year would be no exception. While this seems like a minor detail whose impact might resemble a grain of salt, it actually could blow up your taxes when you file your 2024 return in early 2025. Tax brackets are ranges of percentages charged on pieces of your taxable income: the highest federal income tax rate is 22 per cent, and which bracket you are in depends on both taxable income and your filing status. Get the latest tips and advice on investing, taxes, retirement and personal finance for your wallet in your inbox from NerdWallet. Sign up here today.
Standard Deduction
Inflation-driven increases in taxpayers’ taxable income levels can be mitigated by taxpayers’ use of the standard deduction. Specifically, each year, the Internal Revenue Service announces an inflation-adjusted standard deduction amount for use on individual income tax returns. Taxable income increased because the Tax Cuts and Jobs Act (TCJA) increased the standard deduction, eliminated personal exemptions, reduced the eligible expenses and itemised-deduction limits, and further increased the number of tax units who did not itemise expenses and itemised deductions, allowing tax units to reduce their taxable income and increase the portion of their money they will keep. Learn more about the basic standard deduction, additional standard deduction for persons aged 65 or over and compare it with other common exemptions. Plus, learn about inflation-adjusted amounts and for tax year 2024.
Retirement Savings Limits
Building up retirement accounts such as 401(k)s, individual retirement arrangements (IRA), or tax-deferred annuities can help you fund future expenses, but your annual contributions might be capped because of the amount you can afford. Several contribution limits and phase-outs for retirement plans will change next year due to cost-of-living adjustments on a schedule: the IRS will catch up on any changes affecting you in early 2024. Any adjustments Congress wants to consider are purely up to them and would impact your bottom line too. These adjustments could affect millions of people’s personal finances. The limits for 401(k) contributions are increasing to $23,000, plus another $7,000 catch-up contribution. IRA contribution limits are also increasing, from $7,500 to $8,000.
Retirement Plan Phase-Outs
This year, as with most years, the IRS has adjusted the amounts for about 50 tax provisions related to inflation. Some of the adjustments could have a substantial impact on how much federal tax you owe – or how much you get back in a refund. Among the numbers the IRS changed to reflect inflation are the: State and dependent standard deduction Income tax brackets Retirement plan contribution limits There are several changes to income phase-out ranges that affect contributions to traditional IRA plans, the Saver’s Credit, and Roth IRA conversions for those who are also covered by a workplace retirement plan and those with unusually low incomes. SIMPLE IRA contribution limits also increased from $15,500 in 2023.
Child Tax Credit
In March 2021, the US president Joe Biden’s American Rescue Plan temporarily increased the child tax credit, which helps taxpayers offset child-rearing costs. Congress is considering additional legislation that would extend the tax credit and expand federal support for small business. Some of the adjustments – to standard deduction, for example, among other tax provisions – were announced this week by the federal government’s Internal Revenue Service. They will slightly increase this year’s already bigger paycheques, depending on how the withholding tables were set up. Every situation is different, and a certified financial planner can help you sort through all the tax changes in 2024. Consider using NerdWallet’s free tax-filing product, powered by Column Tax, for an easy filing experience.
Estate Tax
If you are a high net worth individual planning for the future or trying to manage an estate of a loved one, you should appreciate New York’s estate taxes because the taxes on New York estates can be very large. Estate tax bases have been doubled under the 2017 Tax Cuts and Jobs Act and are scheduled to phase down to $5 million per person (inflation-indexed) by 2026. You might want to consider taking advantage of the increased federal gift and estate tax exemption amounts while they are still available.
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