It is crucial to engage in strategic tax planning, particularly considering the upcoming changes to the standard deduction and tax brackets for the year 2024. These modifications, affecting filers who do not itemize their deductions, will only be reflected in the tax returns filed in early 2025.
The Internal Revenue Service has elevated the thresholds for its seven tax brackets by 5.4% in 2024. This adjustment implies that a single person can now earn up to $609,350 before facing taxation at the highest rate of 37%. Understanding and leveraging these changes can significantly impact one's tax liability.
The Reasons for Adjustments
In the context of the broader economic landscape, the Federal Reserve's efforts to mitigate inflation have influenced recent adjustments in the consumer price index, which is intricately linked to tax changes. Despite some success in curbing inflation, the index continues to rise, albeit at a slower pace.
Moreover, the IRS routinely adjusts various figures in the tax code to account for inflation. For instance, the maximum Earned Income Credit for low-income workers with children has increased to $7,830, marking a $400 raise. Additionally, workers now have the opportunity to contribute more funds to health savings accounts, with the limit set at $3,200.
Estate planning considerations are also paramount, given the rise in the estate tax threshold. Estates valued under $13.61 million are now exempt from taxes, up from $12.92 million in 2023. Similarly, the gift tax threshold has increased to $18,000, allowing for larger tax-free gifts.
Beneficial Ownership Information Required Reporting
In 2021, Congress enacted the Corporate Transparency Act, which includes a beneficial ownership information (BOI) reporting requirement. BOI reporting requirements intend to help U.S. law enforcement fight money laundering and other illegal activity.
Beginning January 1, 2024, businesses outside of sole proprietors will be required to complete BOI reporting. Companies that may be a “reporting company” and will be required to report information to the Financial Crimes Enforcement Network (FinCEN) include:
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Additional Contributions: A’Shira Nelson, CPA, Tax Manager, Director, Wellspring Financial Advisors, LLC
Information as of December 28, 2023
Any suggestions contained herein are general, and do not take into account an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Distribution hereof does not constitute legal, tax, accounting, investment, or other professional advice. Recipients should consult their professional advisors prior to acting on the information set forth herein. In accordance with certain Treasury Regulations, we inform you that any federal tax conclusions set forth in this communication, were not intended or written to be used, and cannot be used by any taxpayer, for the purposes of avoiding penalties that may be imposed by the Internal Revenue Service.