Tax Planning - Important Numbers

The IRS finally released 2024 tax planning information last week in its annual inflation adjustments report (about a month later than they have in previous years).  The release revealed a 5.4% bump in income thresholds for each bracket.  While this doesn’t come close to last year’s historical bump (7%), this is significant considering inflation (CPI) is currently running at 3.2%.

As always, it is important to look at tax planning strategies over the coming years, not just year to year, as it may not always make sense to pay the lowest tax possible now.  

See below for important 2024 tax & retirement planning information recently released:

• 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.

• Marginal rates: For tax year 2024, 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 rates are:
  • 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 lowest rate is 10% for incomes of single individuals with incomes of $11,600 or less ($23,200 for married couples filing jointly).
    
    
• The Alternative Minimum Tax exemption amount for tax year 2024 is $85,700 and begins to phase out at $609,350 ($133,300 for married couples filing jointly for whom the exemption begins to phase out at $1,218,700). For comparison, the 2023 exemption amount was $81,300 and began to phase out at $578,150 ($126,500 for married couples filing jointly for whom the exemption began to phase out at $1,156,300).
  
  
• The tax year 2024 maximum Earned Income Tax Credit amount is $7,830 for qualifying taxpayers who have three or more qualifying children, an increase of from $7,430 for tax year 2023. The revenue procedure contains a table providing maximum EITC amount for other categories, income thresholds and phase-outs.
  
  
• Estates of decedents who die during 2024 have a basic exclusion amount of $13,610,000, increased from $12,920,000 for estates of decedents who died in 2023.
  
  
• The annual exclusion for gifts increases to $18,000 for calendar year 2024, increased from $17,000 for calendar year 2023.
  
  
• As part of the 2017 tax reform law, sole proprietors and owners of pass-through businesses like LLCs, S corporations, and partnerships may be eligible for a deduction of up to 20% to lower the tax rate for qualified business income (QBI). The deduction is subject to threshold and phased-in amounts. For 2024, the threshold amounts begin at $383,900 for married taxpayers filing jointly.
  
  
• Capital Gains rates will not change for 2024, but the brackets for the rates will change. Most taxpayers pay a maximum 15% rate, but a 20% tax rate applies if your taxable income exceeds the thresholds set for the 37% ordinary tax rate. Exceptions also apply for art, collectible, and section 1250 gain (related to depreciation). The maximum zero rate amounts and maximum 15% rate amounts break down as follows:
  
  
  
• Health Savings Accounts (HSA). In 2024, the annual limitation on deductions for an individual with self-only coverage under a high deductible health plan (HDHP) will be $4,150 ($8,300 for a family). For 2024, an HDHP will be defined as a health plan with an annual deductible that is not less than $1,600 for self-only coverage ($3,200 for a family). The annual out-of-pocket expenses, including deductibles, co- payments, and other amounts—but not premiums—cannot exceed $8,050 for self-only coverage ($16,100 for a family).
  
  
• The contribution limit for employees who participate in 401(k), 403(b), and most 457 plans, as well as the federal government's Thrift Savings Plan is increased to $23,000, up from $22,500.  The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), and most 457 plans, as well as the federal government's Thrift Savings Plan remains $7,500 for 2024. Therefore, participants in 401(k), 403(b), and most 457 plans, as well as the federal government's Thrift Savings Plan who are 50 and older can contribute up to $30,500, starting in 2024. The catch-up contribution limit for employees 50 and over who participate in SIMPLE plans remains $3,500 for 2024.
  
  
• The income phase-out range for taxpayers making contributions to a Roth IRA is increased to between $146,000 and $161,000 for singles and heads of household, up from between $138,000 and $153,000. For married couples filing jointly, the income phase-out range is increased to between $230,000 and $240,000, up from between $218,000 and $228,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.

Sources:  IRS.gov; William R. Hesmer, Jr. CFP, AIF

William R. Hesmer, Jr., CFP, AIF is a founder and principal at Oak Harbor Wealth Partners, LLC.  He can be reached at WHesmer@oh-wp.com.