Larson Key Financial Data

Tax season officially kicks off this week, with the IRS starting to accept tax returns as of Monday, January 29. And with three major pieces of tax legislation passed within the last four years, your taxes may be more complicated than ever before.

The SECURE Act was swiftly followed by the global onset of the COVID-19 pandemic, leading to various economic stimuli in 2020. This succession of legislative actions left taxpayers navigating an increasingly complex landscape, with temporary provisions from the Tax Cuts and Jobs Act sunsetting in 2025. With each legislative piece, there are more nuances, inflation adjustments, expiring tax breaks, and rules to comprehend.

Six years ago, the Republican-led Congress passed the Tax Cuts and Jobs Act of 2017, marking the most extensive tax overhaul since 1986. Then in December 2019, the SECURE Act was passed, reshaping inheritance rules for non-spouse beneficiaries of retirement accounts.

Tax Brackets and Tax Rates

Each year, the IRS adjusts over 60 tax provisions for inflation to prevent what is called “bracket creep.” Bracket creep happens when taxpayers are thrust into higher income tax brackets or have reduced value from credits or deductions due to inflation, rather than through any increase in real income.

There are still seven federal income tax rates, which were set by the 2017 Tax Cut and Job Act: 10%, 12%, 22%, 24%, 32%, 35% and 37%. The IRS increased its tax brackets by about 5.4% for each type of tax filer for 2024, such as those filing separately or as married couples. The 2024 limits come after the IRS last year expanded its tax brackets by a historically large 7%, reflecting last year’s high inflation.

For 2024, more income could fall into lower tax brackets because of inflation adjustments. For instance, in the 2023 tax year single tax filers will pay 10% on their first $11,000 of taxable income. In 2024, the first $11,600 of taxable income will fall into the 10% tax bracket, which means $600 of additional income will be taxed at 10%, instead of 12% in the current tax year.

This is the largest move from 2023 to 2024, where more funds can be passed through the lower tax brackets. That’s all scheduled to end after 2025. That’s because many of the provisions of recent tax legislation are due to sunset in 2025.

Deductions

For 2024, the standard deduction will increase between $750 and $1,500 from the previous year.

The standard deduction increases slightly from $27,700 in 2023 to $29,200 in 2024, for married-filing-jointly filers; from $13,850 to $14,600, for single and married-filing-separately filers; and from $20,800 to $21,900, for head-of-household filers.

Remember that the ability to take personal exemptions has been eliminated, a change which to some degree tempers the benefit of the higher standard deduction.

The additional standard deduction amounts went up slightly from 2023. Thus, people who are blind or over age 65 receive an extra deduction of $1,550 each in 2024 up from $1,500 in 2023. The additional deduction also increases from $1,850 in 2023 to $1,950 in 2024 for unmarried taxpayers.

For 2024, the standard deduction amount for an individual who may be claimed as a dependent by another taxpayer cannot exceed the greater of $1,300 or the sum of $450 and the individual’s earned income (not to exceed the regular standard deduction amount).

2024 Expanded Child Tax Credit

Congress is considering legislation which includes an expanded Child Tax Credit (CTC). If approved, the bipartisan tax deal would expand the popular tax credit and benefit around 15 million children in the United States.

Lawmakers were trying to pass the changes to the CTC before this year’s tax season officially kicked off. Despite the delay, some lawmakers have suggested that the bill could be passed in the coming weeks and applied retroactively to 2023 tax returns. If Congress passes the bill, the proposed changes to the child tax credit could mean a larger credit for some families.

Experts suggest that taxpayers should not hold off on filing in the hope that Congress will fast-track this legislation. Rather, it’s likely the IRS will send you a check to make up the difference, if enacted.

And More…

These are just a few of the many changes for tax laws in 2024. But our priority is to keep you informed and empowered so you can make sound financial decisions. If you have any questions about any of these changes, or if you’d like to schedule a consultation to discuss how these updates may impact your financial plan, contact your Larson Advisor today. If appropriate, they may refer you to our colleagues at Larson Tax Partners for an in-depth review of your tax situation, and to see if there’s any opportunities for enhanced savings.

Tax information courtesy of Debra Taylor, CPA/PFS, JD, CDFA