2024 Tax Law Changes: What You Need to Know
2024 Tax planning
With the new year comes changes to the 2024 tax laws, impacting tax preparation and planning. Understanding these updates is vital as they can influence personal taxes. By proactively engaging in tax planning throughout 2024, individuals can reduce tax burdens and enhance after-tax income. Here's a concise overview of key 2024 tax law modifications.
Income Taxes
The IRS has increased the Standard Deduction for the 2024 tax year. This deduction allows you to reduce the taxable portion of your income by subtracting a specific amount from your adjusted gross income, providing tax relief. In 2024, the Standard Deduction is rising by 5.4%. It will be $14,600 for single filers and those married filing separately, $29,200 for those married filing jointly, and $21,900 for heads of households.
Moreover, the IRS is updating the income tax brackets for 2024, elevating each marginal tax bracket by 5.4% to adjust for inflation. If taxpayers' taxable income remains consistent with the previous year, they may witness a net pay increase in 2024, subject to the year's withholdings. The IRS has also revised the tax withholding tables for 2024, guiding employers on the Federal tax amount to withhold from employee wages. Employees receiving income through payroll should take note of this update.
Retirement Account Changes
The 2024 tax updates will now allow individuals to contribute more to their retirement accounts, potentially reducing their taxable income. The contribution limit for 401(k) plans has been increased by $500 to $23,000, while IRA contribution limits have also gone up by $500 to $7,000. Moreover, individuals aged 50 and above, who have earned income, can make extra catch-up contributions of $7,500 to their 401(k) plans and $1,000 to their IRAs. Taxpayers need to pay attention to the income ranges set by the IRS, which determine eligibility for deductible contributions to Traditional IRAs and direct Roth IRA contributions.
HSA and FSA Changes
For those eligible to contribute to Health Savings Accounts (HSA) or Flexible Savings Accounts (FSA), the new 2024 tax laws will enable higher contributions this year.
In 2024, the IRS HSA contribution limit will reach a record amount with individuals able to contribute up to $4,150 and families able to contribute up to $8,300. These amounts are about 7% higher than 2023. Taxpayers eligible for catch-up contributions can add an additional $1,000.
For those with FSAs, the maximum individual contribution limit is $3,200 or $6,400 for a household for 2024. For those with cafeteria plans that allow the carryover of unused amounts, the 2024 max carryover amount is $640.
Social Security
Over 60 million Social Security beneficiaries will see a boost in their benefits at the start of 2024. A 3.2% Cost of Living Adjustment (COLA) awaits recipients in the new year. Simultaneously, the maximum taxable earnings for Social Security will climb to $168,600, reflecting changes in the tax forms required by beneficiaries.
For those eyeing early Social Security claims while pursuing additional work, the 2024 earned income limit rises to $22,320. The Social Security Administration will trim $1 from benefits for every $2 over this threshold. As for workers hitting full retirement age in 2024, the earnings cap jumps to $59,520, with the SSA reducing benefits by $1 for every $3 exceeding this limit.
Notably, there are no earnings limits for those at full retirement age or older throughout the year. Prospective Social Security claimants should note they can begin receiving benefits at 62, up to age 70, with the average full retirement age hovering around 67. Opting for early Social Security claims entails a permanent benefits reductionāthe earlier the claim, the steeper the cut. Claiming at 62, for instance, could slash benefits by nearly 30% compared to waiting until full retirement age. To maximize your entitlements, delve into strategies for optimizing Social Security benefits, a topic we delve deeply into during the planning phase.
Education Planning
The SECURE Act 2.0 has introduced a new feature allowing owners of 529 accounts to transfer any unused funds into a Roth IRA. Starting in 2024, 529 accounts will have the ability to move up to $35,000 to a Roth IRA for a beneficiary, including the account owner if they assign themselves as the recipient. This option proves especially beneficial when the child does not utilize the entire balance in their 529 account.
Gifting & Estate Planning
Those planning to gift money this year can benefit from a higher annual gift exclusion limit. The 2024 annual gift exclusion limit will rise to $18,000, an increase of $1,000 from last year.
Additionally, for those looking to transfer wealth, the lifetime estate tax exemption will increase to $13.6 million in 2024, up from $12.9 million last year.
State Tax Changes
Tax changes extend beyond the federal level this year, as more than 30 states are enacting revisions to their tax regulations. The Tax Foundation reports that 17 states are lowering individual or corporate taxes, with several states opting for reductions in both. Noteworthy tax reforms in recent years, such as reductions and cuts in tax rates, have been observed as states recover from the impact of the pandemic.
For a summary of tax changes by state, see the link below:
https://taxfoundation.org/research/all/state/2024-state-tax-changes/
For those interested in tax planning strategies for 2024 or seeking assistance on how the new updates might affect their taxes, please reach out to the team at Savvy Wealth.
Source:
https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2024Ā
Meet
Alex Austin
Hello there šš¼ Iām Alex Austin a CERTIFIED FINANCIAL PLANNERā¢ at Savvy, specializing in financial planning. I like to consider myself to be the GPS in a clientās financial life so they can reach their financial and retirement destination with the most efficient and optimal route.Ā
All advisory services are offered through Savvy Advisors Inc. (āSavvy Advisorsā or āSavvyā), an investment advisor registered with the Securities and Exchange Commission (āSECā).Ā Material prepared herein has been created for informational purposes only and should not be considered investment advice or a recommendation.Ā Information was obtained from sources believed to be reliable but was not verified for accuracy.Ā It is important to note that federal tax laws under the Internal Revenue Code (IRC) of the United States are subject to change, therefore it is the responsibility of taxpayers to verify their taxation obligations.Ā
ā
2024 Tax Law Changes: What You Need to Know
2024 Tax planning
With the new year comes changes to the 2024 tax laws, impacting tax preparation and planning. Understanding these updates is vital as they can influence personal taxes. By proactively engaging in tax planning throughout 2024, individuals can reduce tax burdens and enhance after-tax income. Here's a concise overview of key 2024 tax law modifications.
Income Taxes
The IRS has increased the Standard Deduction for the 2024 tax year. This deduction allows you to reduce the taxable portion of your income by subtracting a specific amount from your adjusted gross income, providing tax relief. In 2024, the Standard Deduction is rising by 5.4%. It will be $14,600 for single filers and those married filing separately, $29,200 for those married filing jointly, and $21,900 for heads of households.
Moreover, the IRS is updating the income tax brackets for 2024, elevating each marginal tax bracket by 5.4% to adjust for inflation. If taxpayers' taxable income remains consistent with the previous year, they may witness a net pay increase in 2024, subject to the year's withholdings. The IRS has also revised the tax withholding tables for 2024, guiding employers on the Federal tax amount to withhold from employee wages. Employees receiving income through payroll should take note of this update.
Retirement Account Changes
The 2024 tax updates will now allow individuals to contribute more to their retirement accounts, potentially reducing their taxable income. The contribution limit for 401(k) plans has been increased by $500 to $23,000, while IRA contribution limits have also gone up by $500 to $7,000. Moreover, individuals aged 50 and above, who have earned income, can make extra catch-up contributions of $7,500 to their 401(k) plans and $1,000 to their IRAs. Taxpayers need to pay attention to the income ranges set by the IRS, which determine eligibility for deductible contributions to Traditional IRAs and direct Roth IRA contributions.
HSA and FSA Changes
For those eligible to contribute to Health Savings Accounts (HSA) or Flexible Savings Accounts (FSA), the new 2024 tax laws will enable higher contributions this year.
In 2024, the IRS HSA contribution limit will reach a record amount with individuals able to contribute up to $4,150 and families able to contribute up to $8,300. These amounts are about 7% higher than 2023. Taxpayers eligible for catch-up contributions can add an additional $1,000.
For those with FSAs, the maximum individual contribution limit is $3,200 or $6,400 for a household for 2024. For those with cafeteria plans that allow the carryover of unused amounts, the 2024 max carryover amount is $640.
Social Security
Over 60 million Social Security beneficiaries will see a boost in their benefits at the start of 2024. A 3.2% Cost of Living Adjustment (COLA) awaits recipients in the new year. Simultaneously, the maximum taxable earnings for Social Security will climb to $168,600, reflecting changes in the tax forms required by beneficiaries.
For those eyeing early Social Security claims while pursuing additional work, the 2024 earned income limit rises to $22,320. The Social Security Administration will trim $1 from benefits for every $2 over this threshold. As for workers hitting full retirement age in 2024, the earnings cap jumps to $59,520, with the SSA reducing benefits by $1 for every $3 exceeding this limit.
Notably, there are no earnings limits for those at full retirement age or older throughout the year. Prospective Social Security claimants should note they can begin receiving benefits at 62, up to age 70, with the average full retirement age hovering around 67. Opting for early Social Security claims entails a permanent benefits reductionāthe earlier the claim, the steeper the cut. Claiming at 62, for instance, could slash benefits by nearly 30% compared to waiting until full retirement age. To maximize your entitlements, delve into strategies for optimizing Social Security benefits, a topic we delve deeply into during the planning phase.
Education Planning
The SECURE Act 2.0 has introduced a new feature allowing owners of 529 accounts to transfer any unused funds into a Roth IRA. Starting in 2024, 529 accounts will have the ability to move up to $35,000 to a Roth IRA for a beneficiary, including the account owner if they assign themselves as the recipient. This option proves especially beneficial when the child does not utilize the entire balance in their 529 account.
Gifting & Estate Planning
Those planning to gift money this year can benefit from a higher annual gift exclusion limit. The 2024 annual gift exclusion limit will rise to $18,000, an increase of $1,000 from last year.
Additionally, for those looking to transfer wealth, the lifetime estate tax exemption will increase to $13.6 million in 2024, up from $12.9 million last year.
State Tax Changes
Tax changes extend beyond the federal level this year, as more than 30 states are enacting revisions to their tax regulations. The Tax Foundation reports that 17 states are lowering individual or corporate taxes, with several states opting for reductions in both. Noteworthy tax reforms in recent years, such as reductions and cuts in tax rates, have been observed as states recover from the impact of the pandemic.
For a summary of tax changes by state, see the link below:
https://taxfoundation.org/research/all/state/2024-state-tax-changes/
For those interested in tax planning strategies for 2024 or seeking assistance on how the new updates might affect their taxes, please reach out to the team at Savvy Wealth.
Source:
https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2024Ā
Meet
Alex Austin
Hello there šš¼ Iām Alex Austin a CERTIFIED FINANCIAL PLANNERā¢ at Savvy, specializing in financial planning. I like to consider myself to be the GPS in a clientās financial life so they can reach their financial and retirement destination with the most efficient and optimal route.Ā
All advisory services are offered through Savvy Advisors Inc. (āSavvy Advisorsā or āSavvyā), an investment advisor registered with the Securities and Exchange Commission (āSECā).Ā Material prepared herein has been created for informational purposes only and should not be considered investment advice or a recommendation.Ā Information was obtained from sources believed to be reliable but was not verified for accuracy.Ā It is important to note that federal tax laws under the Internal Revenue Code (IRC) of the United States are subject to change, therefore it is the responsibility of taxpayers to verify their taxation obligations.Ā
ā
