The IRS recently released the 2024 cost-of-living adjustments to various provisions of the tax code, which you will use to file your federal income tax return in 2025.
Marginal Income Tax Rates
The following rates apply to individuals’ income in 2024.
For trusts and estates, the marginal income tax rates in 2024 are as follows.
Standard Deduction vs. Itemized Deductions
The standard deduction for individuals increases to $14,600 in 2024, up $750 from the prior year. For married couples filing joint tax returns, the standard deduction is $29,200, a $1,500 increase from 2023.
If your allowable expenses exceed the standard deduction in any given year, you may forego the standard deduction and instead itemize those deductible expenses to reduce your taxable income and related tax liabilities. These deductible expenses may include student loan interest, mortgage interest, charitable donations, qualifying medical and dental expenses, and up to $10,000 paid toward state and local taxes.
Federal Gift and Estate Taxes
The federal estate tax exemption for 2024 is $13,610,000 for individuals, up from $12,920,000 in 2023. Married couples filing joint tax returns may shield as much as $27,220,000 from federal estate tax in 2024, an increase from $25,840,000 in the prior year.
Current law calls for these generous estate tax exemptions to reset in 2026 and return to their 2017 levels of approximately $5 million for individuals and $10 million for married couples, adjusted for inflation. With this in mind, now is the time to implement estate-planning strategies that remove appreciated assets from your taxable estate and minimize your future exposure to federal estate taxes, which can be as high as 40 percent.
One way to remove appreciable assets from your taxable estate is through gifting. In 2024, the maximum amount you may give to others without incurring federal gift tax is $18,000, up from $17,000 in 2023. While married couples who are both U.S. citizens can continue to make unlimited gifts to each other tax-free, only the first $185,000 a spouse makes to a non-U.S. citizen spouse can be excluded from the total amount of taxable gifts for 2024.
Alternative Minimum Tax (AMT)
The AMT exemption in 2024 is $85,700 for individuals and begins to phase out at $609,350. For married couples filing joint tax returns, the exemption is $133,300 and begins to phase out at $1,218,700.
Kiddie Tax
Minor children younger than 19 and college students younger than 24 with 2024 unearned income (i.e., investment income) of $1,300 from sources other than salary and wages are subject to tax at the same rate as trusts and estates. Parents may elect to include between $1,300 and $13,000 of an eligible child’s unearned income on their personal tax returns.
Adoption Tax Credit
The maximum credit you may receive for qualified adoption expenses incurred in 2024 increases to $16,820, up from $15,950 in the prior year. The credit’s availability begins to phase out when modified adjusted gross income (MAGI) exceeds $252,150, and it is completely phased out when MAGI is $292,150 or more.
Foreign Earned Income Exclusion
The foreign earned income exclusion in 2024 increases to $126,500, up from $120,000 for the 2023 tax year.
Health Care
The amount you may contribute to a workplace health flexible spending account via salary deferral in 2024 is $3,200, up from $3,050 the prior year. The maximum amount of unused funds you may carry over to the following year, if your plan allow, is $640.
For taxpayers with self-only coverage in a Medical Savings Account, plans must have an annual deductible of less than $2,650, but not more than $3,950, and the maximum out-of-pocket expense limit is $5,300. For family coverage, the annual deductible may not be less than $5,300 or more than $7,900, with an out-of-pocket expense limit of $9,650.
Deduction for Pass-Through Business Owners
The Section 199A deduction of up to 20 percent of qualified business income (QBI) available to eligible sole proprietors and owners of pass-through businesses (i.e., S Corporations) is subject to income limitations. For 2024, the deduction is reduced when taxable income exceeds $182,100 for individuals, or $364,200 for married couples filing jointly and is phased out entirely when individual income reaches $232,100, or $464,200 for married couples filing jointly.
About the Author: Kathleen Marteney, CRPC®, is a financial planner with Provenance Wealth Advisors (PWA), an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs, and a registered representative with PWA Securities, LLC (PWAS). She can be reached at (800) 737-8804 or via email at info@provwealth.com.
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Kathleen Marteney is a registered representative of and offers securities through PWA Securities, LLC, Member FINRA/SIPC..
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.
Any opinions are those of the advisors of PWA and not necessarily those of PWA Securities, LLC. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of PWAS, we are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. Prior to making any investment decision, please consult with your financial advisor about your individual situation.
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Posted January 3, 2024