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Taxes Are Changing (Thank You Inflation)
Unless you have lived in a cave for the past two years, which if so doesn’t seem all that bad, you are quite aware of this little thing going on called inflation. We have seen it impact your mortgages, buying power, and Social Security payments. Recently, the IRS has come out and adjusted many tax-related items as they pertain to your taxes. I thought it would be valuable to share many of these changes as they likely impact everyone reading this. In short, what you will see below is that the IRS has adjusted tax brackets by roughly 5.4%.
In The Top Tax Bracket
For you high earners lucky enough to pay the top tax bracket, currently slated at 37%, in 2023 that number for joint filers is $693,750 and $578,124 for single filers. For 2024, drumroll please, those figures increase to$731,200 and $609,350 respectively. That means you have roughly $30,000-$40,000 of income before you top out in the coming year. Remember our tax rate is progressive so you only pay the top rate for your earned dollars over that threshold.
How bout them standard deductions? With the SALT tax limits many more filers these days opt for standard deductions rather than itemized deductions. Well good news you standard peeps, in 2024 these figures rise from $13,850 to $14,600 for single filers and double the fun for married filers as they get a gracious $29,200 of standard deductions. Remember this is the amount you can simply deduct from your earnings before you pay any real taxes.
What about capital gains taxes? More good news, for 2024 you won’t pay any capital gains tax if you make $47,025 or less and you guessed it double that figure for you joint folks at $94,050. This can be a huge planning opportunity for those who may historically be in a large income bracket but due to layoffs, switching jobs, or retirement could possibly take advantage of some zero tax on capital gains assets like stocks.
Many of our clients take advantage one way or another of the annual gift-tax exemptions. This is the amount any one person can give to another without even having to file a gift tax return. For 2023 that figure is $17,000 and for 2024 we can now give $18,000 to any one person. Now remember, if you are married you can double that figure basically and give $36,000 to any one person if you are so inclined. Furthermore, let’s say you are giving to your married children.
In this instance, you could effectively give $72,000 moving forward as you and your spouse could give your child and their spouse $36,000 each. The beauty of this is no one pays any tax on these funds, neither the giver nor the recipient, and they don’t count towards your lifetime gift exemption.
Funny you should ask about the lifetime gift exemption as that figure has also increased for 2024. In 2023 you could give $12.92 million dollars away without paying any federal taxes per person. In 2024, that figure has gone up to $13.61 million dollars! This is a very interesting exemption, to be honest.
For starters, many people are worried that when they die their heirs will be stuck paying lots of estate tax. Federally speaking, unless you are extremely wealthy you won’t have to worry about it as it is a misnomer (under current estate tax laws that are likely to sunset). Furthermore, remember these figures are per person so if you are married you can double the $13.61 figure and shield $27.22 million dollars from paying the nasty federal tax exemption.
If you are close to one of these figures, for the estate tax limit, you should definitely work with an attorney to have the proper vehicles in place to shelter as much as possible. Additionally, it is important to look at your state and/or local estate tax as often they impose taxes on a much lower limit. In these cases, it is highly recommended to take some proactive measures to avoid or minimize as much tax as possible.
Long story short, times are changing, and in this instance for the better. There are many strategies I have not mentioned, but the first step is education and awareness. Enjoy the rest of your week and stay wealthy, healthy, and happy.