The individual tax environment will change significantly in two years from now, absent congressional action. Barring congressional action, significant tax changes automatically take effect after 2025 when critical provisions enacted under the 2017 Tax Cuts and Jobs Act (TCJA) expire.
Notable impacts:
- Top individual rate rises to 39.6% from 37%
- Ends 20% qualified business income deduction
- Caps SALT deductions at $10K again
- Reinstates personal exemptions
- Standard deduction and child tax credit reduced
- AMT exemptions revert to lower pre-TCJA levels
According to an article published by Baker Tilly, stated that these inflation adjustments impact the section 199A qualified business income deduction, excess business loss threshold, and the Social Security wage base.
Additionally, inflation-based adjustments to tax brackets, deductions, and other IRS code aspects will continue annually.
The IRS recently released official inflation adjustments for the 2024 tax year, including updated tax brackets, standard deductions, and other key figures.
While these 2024 calculations will not impact 2023 tax returns filed in 2024 ( you can see the official 2023 tax numbers in a Forbes article here), they give taxpayers early insight into how brackets, deductions, and other factors will shift 2024 based on the latest inflation data. You’ll use these numbers to prepare your 2024 tax returns in 2025.
Key 2024 Tax Changes:
- Tax brackets adjusted for inflation across all filer statuses
- Higher standard deduction amounts ($13,850 for single filers, $27,700 for married filing jointly)
- Slight increases to alternative minimum tax exemptions
- Higher-income phaseouts for tax credits and deductions
- Marginal bumps to retirement contribution limits, gift tax exclusion, capital loss limits
- Higher failure-to-file and underpayment penalties
The published 2024 tax adjustments provide filers valuable early visibility into changing brackets, deductions, limits, and costs resulting from inflation. While not affecting 2023 filing, taxpayers can begin planning for 2024.
2024 Federal Income Tax Brackets and Rates
The Tax Foundation published an informative article on the subject, which states that the federal income will be adjusted for inflation and has seven tax rates in 2024: 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent, and 37 percent.
The top marginal income tax rate of 37 percent will hit taxpayers with taxable income above $609,350 for single filers and above $731,200 for married couples filing jointly.
2024 Federal Income Tax Brackets and Rates for Single Filers, Married Couples Filing Jointly, and Heads of Households
| Tax Rate | For Single Filers | For Married Individuals Filing Joint Returns | For Heads of Households |
|---|---|---|---|
| 10% | $0 to $11,600 | $0 to $23,200 | $0 to $16,550 |
| 12% | $11,600 to $47,150 | $23,200 to $94,300 | $16,550 to $63,100 |
| 22% | $47,150 to $100,525 | $94,300 to $201,050 | $63,100 to $100,500 |
| 24% | $100,525 to $191,950 | $201,050 to $383,900 | $100,500 to $191,950 |
| 32% | $191,950 to $243,725 | $383,900 to $487,450 | $191,950 to $243,700 |
| 35% | $243,725 to $609,350 | $487,450 to $731,200 | $243,700 to $609,350 |
| 37% | $609,350 or more | $731,200 or more | $609,350 or more |
Standard Deduction and Personal Exemption
In 2024, standard deductions will see slight inflation bumps, providing modestly higher tax reductions for filers not itemizing. Seniors continue receiving more significant standard deductions. However, personal exemptions are still eliminated as part of TCJA changes that expire after 2025.
- Standard deduction rises $750 for single filers, $1,500 for joint filers
- Additional standard deduction of $1,950 if single 65+ years old, $1,550 if married filing jointly 65+
- Personal exemption remains eliminated at $0 per TCJA
| Filing Status | Deduction Amount |
|---|---|
| Single | $14,600 |
| Married Filing Jointly | $29,200 |
| Head of Household | $21,900 |
| Additional Amount for Married Seniors | $1,550 |
| Additional Amount for Unmarried Seniors | $1,950 |
Section 199A (Qualified Business Income) Deduction
As part of the 2017 tax reform law, sole proprietors and owners of pass-through businesses like LLCs, S corporations, and partnerships may be eligible for a deduction of up to 20% to lower the tax rate for qualified business income. The deduction is subject to threshold and phased-in amounts. For 2024, the threshold amounts begin at $383,900 for married taxpayers filing jointly.
| Filing Status | Threshold |
|---|---|
| Unmarried Individuals | $191,950 |
| Married Filing Jointly | $383,900 |
Alternative Minimum Tax (AMT)
The AMT exemption rate is also subject to inflation. The AMT exemption amount for tax year 2024 for single filers is $85,700 and begins to phase out at $609,350 (in 2023, the exemption amount for single filers was $81,300 and began to phase out at $578,150). In 2024, the AMT exemption amount for married couples filing jointly is $133,300 and begins to phase out at $1,218,700 (in 2023, the exemption amount for married couples filing jointly was $126,500 and began to phase out at $1,156,300.
| Filing Status | Exemption Amount |
|---|---|
| Unmarried Individuals | $85,700 |
| Married Filing Jointly | $133,300 |
Capital Gains Tax Rates and Brackets (Long-Term Capital Gains)
Long-term capital gains face different brackets and rates than ordinary income,
| For Unmarried Individuals, Taxable Income Over | For Married Individuals Filing Joint Returns, Taxable Income Over | For Heads of Households, Taxable Income Over | |
|---|---|---|---|
| 0% | $0 | $0 | $0 |
| 15% | $47,025 | $94,050 | $63,000 |
| 20% | $518,900 | $583,750 | $551,350 |
Conclusion
There are few other brackets such as the annual exclusion of gifts and child tax credit that I did not mention.
Given economic volatility, mounting debt, and upcoming elections, the future of TCJA provisions remains uncertain. Their expiration may bring higher future taxes for many.
Accelerating income and deferring deductions are typically used to smooth planning across rate changes. However, with lower rates expiring post-2025, shifting more income into future years with unknown higher rates is risky.
Each taxpayer’s situation requires careful analysis when weighing income acceleration or deduction deferral. With the TCJA time bomb in 2026, traditional tax planning tactics become complex. Extending provisions would provide stability, but inaction could trigger spikes and turbulence.
Absent legislative action to modify TCJA’s sunset, filers face a unclear outlook when mapping long-term tax optimization strategies. The prudent approach weighs multiple scenarios and tax impacts across personal and business income. Given the crossroads ahead, taxpayers need agility to shift directions when the dust settles. if you have any questions about your situation feel free to reach out for a free consultation.
