By Peyton Carr
Nov 11th, 2023
Come 2024, thanks to ongoing inflation, taxpayers can expect to see a number of tax inflation adjustments that apply to 2024 federal income tax brackets, standard deductions, capital gains, estate and gift tax, 401(k)s, IRAs, and FSA/HSA contribution limits.
Below is an overview of the changes that we feel are most applicable to our clients for 2024. This is not an exhaustive list. We recommend discussing the items below with your tax advisor before taking any action. For those interested in timely 2023 year-end tax planning strategies aimed to optimize your tax bill, you can find our checklist here.
New Federal Income Tax Rates
The IRS increased tax brackets by approximately 5.4%. This is higher than average, but not as high as 2023, where we saw about a 7% increase.
For married couples, the highest federal income tax bracket (37% tax rate) now starts at incomes over $731,200, a $40,000 increase. For single filers, this bracket begins at $609,350. They have increased the income thresholds for each bracket
However, not all tax rates are adjusted for inflation. The 3.8% investment income tax, for instance, remains unchanged, which will likely affect more taxpayers due to its static thresholds of $200,000 for individuals and $250,000 for couples. Additionally, the $10,000 cap on state and local tax deductions (SALT) and the $3,000 limit on capital losses remain fixed.
Keep in mind that your effective tax rate will always be lower than your highest marginal tax rate/bracket for federal income taxes. This is due to the tiered nature of income taxation, where portions of your income are taxed at incremental marginal rates, starting from 10%, then 12%, 22%, and progressing up to 37%. Essentially, your effective tax rate is a blend of these varied rates.
2024 Tax Brackets – Married Couples Filing Jointly
10%: Taxable income up to $23,200
12%: Taxable income over $23,200
22%: Taxable income over $94,300
24%: Taxable income over $201,050
32%: Taxable income over $383,900
35%: Taxable income over $487,450
37%: Taxable income over $731,200
2024 Tax Brackets – Individual
10%: Taxable income up to $11,600
12%: Taxable income over $11,600
22%: Taxable income over $47,150
24%: Taxable income over $100,525
32%: Taxable income over $191,950
35%: Taxable income over $243,725
37%: Taxable income over $609,350
This has increased to $14,600 for individuals and $29,200 for married couples.
Estate and Gift Tax Exemption
This amount rises to $13.61 million in 2024, up from $12.92 million in 2023.
Families and individuals with significant assets who expect a decrease in the estate-tax exemption after 2025, are recommended to consider some of the sophisticated gifting strategies involving the use of irrevocable trusts.
This increase also applies to annual gift limits, which climb to $18,000 in 2024 from $17,000, allowing for tax-free transfers without affecting the lifetime gift tax maximum.
401(k) and IRAs
The maximum contribution to 401(k)s has been raised to $23,000, an increase of $500 from the previous year, with an additional $7,500 allowed for individuals aged 50 and above. Similarly, the cap for individual retirement accounts (IRAs) is set at $7,000, up from $6,500, with a $1,000 extra contribution permitted for those 50 and older.
For HSAs in 2024, the contribution limit for single taxpayers will be $4,150. For family plans, the limit will be $8,300. The additional contribution allowance for individuals over 55 remains unchanged at $1,000 for their HSAs. FSA contributions will rise to $3,200.
Alternative Minimum Tax (AMT)
The Alternative Minimum Tax (AMT) exemption for 2024 is $85,700 and starts 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). As a point of comparison, the exemption amount for 2023 stood at $81,300, with a phase-out threshold of $578,150 ($126,500 for married couples filing jointly, with a phase-out threshold of $1,156,300). More details can be found on the Internal Revenue Service website.
Please reach out should you have any questions.
-Keystone Global Partners
The information and opinions provided in this material are for general informational purposes only and should not be considered as tax, financial, investment or legal advice. The information is not intended to replace professional advice from qualified professionals in your jurisdiction. To view up-to-date information on tax brackets, federal income tax, federal tax brackets, and filing status, you can access the Internal Revenue Service website here.
Tax laws and regulations are complex and subject to change, and their application can vary widely based on the specific facts and circumstances involved. Any tax information or advice in this article is not intended to be, and should not be, used as a substitute for specific tax advice from a qualified tax professional. You should consult with a licensed professional for advice concerning your specific situation.