Tax season is just around the corner, and while nobody loves the paperwork, being prepared can make all the difference. To help you out, we've put together a summary of the key tax changes for the 2024 tax year (for returns filed in 2025). Let's dive in and see what's new:
1. Income Tax Brackets Get an Inflation Adjustment
The IRS adjusts tax brackets annually to account for inflation, and 2024 is no different. While the seven tax rates remain the same, the income ranges for each bracket have shifted slightly. Here's a quick look:
2024 Tax Brackets
| Tax Rate | Single Filers | Married Filing Jointly | Married Filing Separately | Head of Household |
|---|---|---|---|---|
| 10% | $0 to $11,600 | $0 to $23,200 | $0 to $11,600 | $0 to $16,550 |
| 12% | $11,601 to $47,150 | $23,201 to $94,300 | $11,601 to $47,150 | $16,551 to $63,100 |
| 22% | $47,151 to $100,525 | $94,301 to $201,050 | $47,151 to $100,525 | $63,101 to $100,500 |
| 24% | $100,526 to $191,950 | $201,051 to $383,900 | $100,526 to $191,950 | $100,501 to $191,950 |
| 32% | $191,951 to $243,725 | $383,901 to $487,450 | $191,951 to $243,725 | $191,951 to $243,700 |
| 35% | $243,726 to $609,350 | $487,451 to $731,200 | $243,726 to $365,600 | $243,701 to $609,350 |
| 37% | $609,351 or more | $731,201 or more | $365,601 or more | $609,351 or more |
Note: While these wider brackets might seem like they'd lead to bigger refunds, they mostly just keep pace with the cost of living.
2. Standard Deduction Sees a Modest Increase
Good news for those who take the standard deduction! It's been bumped up again for 2024:
- Single Filers/Married Filing Separately: $14,600 (increasing to $15,000 in 2025)
- Head of Household: $21,900 (increasing to $22,500 in 2025)
- Married Filing Jointly: $29,200 (increasing to $30,000 in 2025)
For most taxpayers, the standard deduction remains the simpler and more beneficial option compared to itemizing.
3. Itemized Deductions: Mostly Business as Usual
If you're considering itemizing, the rules for 2024 are largely unchanged. Here are a few key points to remember:
- State and Local Taxes (SALT): The deduction for state and local income, property, and real estate taxes remains capped at $10,000.
- Mortgage Interest: You can deduct interest on up to $750,000 of mortgage debt ($1,000,000 if incurred before December 16, 2017).
- Medical Expenses: Only medical expenses exceeding 7.5% of your Adjusted Gross Income (AGI) are deductible.
- Charitable Donations: You can deduct up to 30% of your AGI for non-cash donations (if held for more than one year) and up to 60% of your AGI for cash donations to public charities. The combined limit is generally 50% of your AGI.
- Miscellaneous Deductions: These remain suspended for 2024.
4. Retirement Savers Get a Little Extra Room: IRA, 401(k), and 529 Plan Limits
Saving for retirement is always a good idea, and the IRS is giving us a little more incentive in 2024. Contribution limits have increased:
- Traditional and Roth IRAs: $7,000 (with an additional $1,000 catch-up contribution for those age 50 and older).
- 401(k)s and Roth 401(k)s: $23,000 (with an additional $7,500 catch-up contribution for those age 50 and older).
- Health flexible spending accounts: Your clients can contribute up to $3,200 in employee salary reductions to fund their health flexible spending arrangement.
- 529 Plan to Roth IRA Rollover: Starting in 2024, unused 529 plan funds can be rolled over to a Roth IRA (up to a $35,000-lifetime limit). Certain conditions apply, such as a 15-year account age requirement and a rollover amount within the annual Roth IRA contribution limits. The Roth IRA must be in the same name as the 529 plan beneficiary, and the beneficiary must have earned income equal to at least the amount transferred in any year.
Maxing out your retirement contributions can be a great way to boost your savings and potentially reduce your tax burden.
5. Health Savings Account (HSA) Limits Also Rise
If you have a high-deductible health plan, you can contribute more to your HSA in 2024:
- Individual: $4,150
- Family: $8,300
- Catch-up (age 55 and older): $1,000
HSAs offer triple tax advantages: contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualified medical expenses are also tax-free.
6. Child Tax Credit Remains a Valuable Benefit (With a Refundable Portion Increase)
The Child Tax Credit continues to provide significant tax relief for families. For 2024, it remains at $2,000 per qualifying child under age 17. The refundable portion of this credit has increased to $1,700. The credit begins to phase out at $400,000 of income for joint filers and $200,000 for single filers. There's also a $500 credit available for other qualifying dependents.
7. 1099-K Reporting Threshold Drops Significantly
If you or your clients receive payments through third-party networks like PayPal or Venmo, pay attention! The reporting threshold for Form 1099-K has dropped to just $5,000 in gross payments with any number of transactions for 2024. This means many more small business owners, freelancers, and side hustlers will receive a 1099-K.
8. Earned Income Tax Credit (EITC) Updates
The EITC, designed to help lower-income workers, has been adjusted for 2024. The maximum credit ranges from $632 (no dependents) to $7,830 (three or more dependents). Income limits also apply. Here are the 2024 income limits and maximum credit amounts:
2024 Earned Income Tax Credit (EITC) Limits
| Number of Dependents | Maximum Credit | Income Limit for Single & Head of Household | Income Limit for Married Filing Jointly |
|---|---|---|---|
| 0 | $632 | $18,591 | $25,511 |
| 1 | $4,213 | $49,084 | $56,004 |
| 2 | $6,960 | $55,768 | $62,688 |
| 3 or more | $7,830 | $59,899 | $66,819 |
Note: Taxpayers can only claim the EITC if their investment income is within an annual limit. The investment income limitation for 2024 is $11,000.
9. Adoption Credit Increases
For those who adopted in 2024, the maximum credit for qualified adoption expenses has increased to $16,810.
10. Premium Tax Credit Extended Through 2025
Thanks to the Inflation Reduction Act, the enhanced Premium Tax Credit (PTC) has been extended through 2025. This provision makes health insurance purchased through the Marketplace more affordable by increasing the amount of the tax credit and expanding eligibility to more middle-income individuals and families.
11. Alternative Minimum Tax (AMT) Exemption Increases
The AMT is a separate tax system designed to ensure that higher-income earners pay a minimum amount of tax. The good news is that the AMT exemption has increased again for 2024:
- Single Filers: $85,700
- Married Filing Jointly: $133,300
The phase-out thresholds for the exemption are $609,350 for single filers and $1,218,700 for married couples filing jointly.
12. Estate Tax Exemption Continues to Climb (For Now)
The estate and gift tax exemption has risen to a substantial $13,610,000 for 2024. This means you can transfer a significant amount of assets to your heirs without incurring estate or gift taxes. However, it's important to note that this higher exemption is set to expire at the end of 2025, potentially dropping significantly unless Congress takes action.
The annual gift exclusion has also increased to $18,000 per recipient, allowing you to give gifts without using any of your lifetime exemption.
13. Don't Forget Required Minimum Distributions (RMDs)
If you're 73 or older, remember to take your required minimum distributions (RMDs) from your retirement accounts (except for Roth accounts). The deadline is generally December 31st, unless it's your first RMD, in which case you have until April 1, 2025. Failure to take your RMD can result in a hefty penalty of 25% on any undistributed funds. Also, any taxpayer born in 1960 or later will not need to take RMDs until age 75.
14. Other Notable Changes
- Electric Vehicle Credit: Starting in 2024, at least 40% of the battery components must come from North America or specified US Trading Partners. The credit can also be advanced at the point of sale and paid directly to the seller, but it will need to be reconciled on the tax return as a non-refundable credit. Any excess advance credit will need to be repaid.
- Bonus Depreciation: The bonus depreciation deduction will be 60% in 2024.
Ready to tackle your 2024 taxes? Contact us today to schedule your appointment!