As we step into 2024, it’s crucial for taxpayers, both individuals and businesses, to stay informed about the latest changes to the US tax code. Each year, the IRS makes adjustments to tax laws that can significantly impact your financial planning and tax filing strategies. This year is no different, with several key changes that you should be aware of to ensure compliance and optimize your tax situation. In this article, we’ll break down the most important tax code changes for 2024 and how they might affect you.
1. Standard Deduction Increases
One of the most notable changes for 2024 is the increase in the standard deduction. For single filers, the standard deduction has increased to $13,850, up from $12,950 in 2023. For married couples filing jointly, the deduction rises to $27,700, up from $25,900. This increase can reduce your taxable income, making it beneficial for those who do not itemize their deductions.
2. Adjustments to Tax Brackets
The IRS has also adjusted the income tax brackets for inflation. Here are the new brackets for 2024:
- 10%: Up to $11,000 (single), $22,000 (married filing jointly)
- 12%: $11,001 to $44,725 (single), $22,001 to $89,450 (married filing jointly)
- 22%: $44,726 to $95,375 (single), $89,451 to $190,750 (married filing jointly)
- 24%: $95,376 to $182,100 (single), $190,751 to $364,200 (married filing jointly)
- 32%: $182,101 to $231,250 (single), $364,201 to $462,500 (married filing jointly)
- 35%: $231,251 to $578,125 (single), $462,501 to $693,750 (married filing jointly)
- 37%: Over $578,125 (single), Over $693,750 (married filing jointly)
These adjustments aim to account for inflation and prevent “bracket creep,” where taxpayers move into higher tax brackets due to inflation rather than real income increases.
3. Changes to Retirement Contribution Limits
For 2024, contribution limits to retirement accounts have increased. The maximum contribution to a 401(k) plan has risen to $23,000, up from $22,500 in 2023. The catch-up contribution limit for those aged 50 and over has also increased to $7,500. For IRAs, the contribution limit is now $7,000, with an additional $1,000 catch-up contribution for those 50 and over.
4. Expanded Child Tax Credit
The Child Tax Credit has been expanded for 2024. Eligible taxpayers can now claim up to $2,200 per qualifying child, an increase from the previous $2,000. This credit begins to phase out for single filers with an adjusted gross income (AGI) above $200,000 and married couples filing jointly with an AGI above $400,000.
5. New Energy Efficient Home Improvement Credits
In an effort to promote energy efficiency, the IRS has introduced new credits for home improvements. Taxpayers can now claim a credit of up to 30% of the cost of qualified energy-efficient improvements, such as solar panels, energy-efficient windows, and HVAC systems, with a maximum credit of $2,000 per year.
6. Updates to Health Savings Accounts (HSAs)
Contribution limits for Health Savings Accounts (HSAs) have also increased. For 2024, individuals with self-only coverage can contribute up to $4,150, while those with family coverage can contribute up to $8,300. The catch-up contribution limit for individuals aged 55 and older remains at $1,000.
7. Enhanced Earned Income Tax Credit (EITC)
The Earned Income Tax Credit (EITC) has been enhanced for 2024, providing more support for low to moderate-income working families. The maximum credit amount for taxpayers with three or more qualifying children has increased to $7,200, up from $6,935 in 2023.
How These Changes Impact You
Understanding these changes is vital for effective tax planning. Here are some steps you can take to adapt:
- Review Your Withholdings: Ensure that your withholdings align with the new tax brackets and standard deduction amounts to avoid overpaying or underpaying taxes throughout the year.
- Maximize Contributions: Take advantage of increased retirement and HSA contribution limits to reduce taxable income and save for the future.
- Claim New Credits: If eligible, make sure to claim the expanded Child Tax Credit and any new energy-efficient home improvement credits.
- Plan for Major Expenses: Consider timing major expenses, such as home improvements, to maximize the new credits available.
By staying informed and proactive, you can navigate these changes effectively and make the most of the tax benefits available in 2024.
Conclusion
The 2024 tax code changes bring several updates that can significantly impact your tax planning and filing. Whether you’re an individual taxpayer or a business owner, understanding these changes is essential to optimize your tax situation and ensure compliance. Consult with a tax professional to help you navigate these changes and develop a strategy that aligns with your financial goals.