Are you an accountant searching for the yearly updates of 2024? It is important to note that almost every year comes with some major changes and updates in tax laws. However, it can be challenging for accountants to stay updated with the ever-changing guidelines. This guide will tell you everything about the 2024 tax laws you should. We will cover all the major and minor updates from 2023. That said, let’s get started!
Inflation & Tax Bracket for 2024
The tax brackets increase every year. That is to balance out the increasing inflation. However, the rate of growth in tax brackets is not set as a fixed value. Instead, it can change every year, depending on the inflation rate. 2023 saw a significant increase in inflation. It has been the highest recorded since 1996. The global inflation touched 6.9% affecting the worldwide market. Thus, the tax brackets adjustment also increased to 5.4% to account for the increasing inflation.
The IRS has announced new tax brackets for single and married filers. Furthermore, married joint and separate filing rates are increased. The tax brackets for Head of Household are also released for 2024.
Standard Deduction
The standard deduction has also been set for the newly announced tax brackets. It is the same growth, a 5.4% increase. This deduction has shifted the game for single, married, and head-of-the-household taxpayers. Here’s what every accountant and taxpayer needs to know:
- Single Taxpayers: $14,600
- Married Filing Separately (MFS): $14,600
- Married Filing Joint (MFJ): $29,200
- Head of the Household: $21,900
Individual Retirement Account and 401(k) Plans
It is important to know that the retirement contribution limits also change yearly. Hence, 2024 is no exception. Even though the increment is not much, it's still considerable. Here are the numbers you need to know for 401(k) plans:
- Roth/pre-tax employee contribution: $23,000
- Employee and employer maximum contribution: $69,000
- Catch-up employee contribution: $7,500
As for the IRA (Individual Retirement Account), there are only 2 numbers to consider. First, the IRA catch-up contributions are the same as 2023, $1000. However, the standard contribution limit has increased by $500. That means it is set at $7,000 for 2024.
There’s another factor to consider. The SEP-IRA contributions also utilize the IRS maximum, which is $69,000. Additionally, the SEP IRA will have the same wage calculation and income. That is only for years ahead of 25% for non-owner employees and 20% for self-employed individuals.
Roth IRA contributions have also increased slightly to $7,000. It is a $500 growth from the limit in 2023.
Alternative Minimum Tax Exemption 2024
The Alternative Minimum Tax exemption is $85,700 for 2024. However, it is planned to discontinue at $609,350.
But this number can vary depending on the taxpayer type. It is set at $133,300 for married couples joint filing with plans to phase out at $1,218,700.
How does it differ from the tax year 2023? Firstly, the alternative minimum tax exemption was $81,300. Its maximum value for married couples' joint filing had started to phase out at $1,156,300. For individuals, this number was $578,150.
Earned Income Tax Credit
Taxpayers always keep an eye out for the maximum Earned Income Tax Credit. In 2023, it was set at a maximum of $7,430. But it has seen a slight increase for 2024, bumping it up to $7,830. Note that the Earned Income Tax Credit is only applicable to taxpayers with three or more children.
Medical Savings Account
Many taxpayers may have self-only coverage in a Medical Savings Account (MSA). For 2023, it was set at a maximum of $3,950. Its minimum amount was $2,650. It has seen a slight growth for the tax year 2024.
Currently, it is set at a maximum of $4,150, a $ 200 growth from the last year. And, its minimum value is $2,800, showing a growth of $150.
However, these numbers can vary for individuals with family coverage accounts. In that case, the maximum annual deductible is $8,350, highlighting an increase of $450 from 2023. Furthermore, its minimum deductible is $5,550.
Lastly, the out-of-pocket expense limit has also seen an increase of $550 from 2023. As for 2024, the limit is set at $10,200.
Foreign Earned Income
The tax year 2024 has also seen an increase in the foreign-earned income exclusion. It was set at $120,000 for 2023. However, the value has since grown to $126,500.
Credit for Adoptions
The tax year 2023 had a maximum credit allowed for adoptions of $15,950. However, it was only for qualified adoption expenses.
While the conditions and eligibility criteria stay the same, the credit has increased to $16,810 for 2024.
Required Minimum Distributions (RMD)
To understand this factor, one must know about the economic changes in 2023. The last year saw many legislative updates for the tax code. They have drastically changed the settings for the tax year 2024.
One of the most significant changes was the Secure Act 2.0, signed on December 29, 2022. This bill was created to keep the government funded. The majority of its changes were planned to take place in 2023.
The Secure Act 2.0 has impacted the Required Minimum Distributions (RMD). RMDs have been increased to age 73 for individuals born between 1951 to 1959 and age 75 for those born in the ‘60s or later.
Besides the age update, the changes in IRA distributions have also occurred. The inherited IRAs for a decedent below the RMD age mark require no annual distribution. However, IRA now requires their entire account to be liquidated by the end of the 10th year.
Gifts
The annual exclusion for gifts was $17,000 for the tax year 2023. It has increased by $1,000 for the tax year 2023. So, it now sits at $18,000.
Flexible Spending Account
The FSA is a major item to consider in the tax year updates. The health flexible spending arrangements have increased to $3,200.
The maximum carryover amount has been set at $640 for the unused amounts. As you may have guessed, it is not a significant growth. That’s because this amount has only increased by $30 from the tax year 2023.
Health Savings Account
We have discussed the changes in the Medical Savings Account (MSA). Thus, it would be unfair to talk about the Health Savings Account (HAS).
Like MSA, HSA also has two types of coverage. The family coverage has an annual deductible of $3,200 maximum. Furthermore, its out-of-pocket expense is $16,100.
However, the individual or self-coverage sits at a maximum of $1,600 with an out-of-pocket expense of $8,050. Another thing to note is that participants over 55 years old can contribute an extra $1,000 yearly. However, they should have coverage under the High Deductible Health Plan (HDHP).
What Do You Need to Know About the Tax Year 2024
The 2024 tax year has seen a considerable increment in almost every item. As mentioned earlier, many legislations passed in 2022 and before have also impacted these numbers.
Another thing to look out for is the Tax Cuts and Jobs Act. Originally passed in 2016, it is now moving towards its end. That is where the legislation will mainly focus after the 2024 election.
However, the impact of the Secure Act 2.0 is also visible in the tax plans for 2024. Most major updates have occurred due to this newly passed legislation, which only became applicable in 2023.
Now that we have discussed the items affected by inflation, let’s look at the unaffected ones. For instance, the limitation on itemized deductions is still eliminated until the end of the Tax Cuts and Jobs Act.
Moreover, the personal exemption also sees no change (stays at 0) because the Tax Cuts and Jobs Act is still in motion. Lastly, the Lifetime Learning Credit modified adjusted gross income account has stayed the same since December 31, 2020.
Conclusion
The inflation tax brackets have seen a massive change in the tax year 2024. Almost every major item has increased its maximum contributions and deductibles. That includes FSA, MSA, HSA, gifts, foreign earned income exclusion, alternative minimum tax exemption, and earned income tax credit. Furthermore, retirement plans will also need to be adjusted as per the updates released by IRA and 401(k) plans.
An accountant can understand all the major changes for the tax year 2024 by going through this detailed guide. We have covered all the updates and tax laws that will be impactful in the coming year. To make your job easier in 2024, accountants can streamline the process by converting client's bank statements into PDF format. This saves tons of time and headaches.
Sources
- 2024 Tax Law Changes and Updates (innovativecpagroup.com)
- What You Need to Know About the Secure Act 2.0 | RGWM Insights (rgwealth.com)
- 2024 Tax Code Changes: Everything You Need To Know | RGWM Insights (rgwealth.com)
- IRS provides tax inflation adjustments for tax year 2024 | Internal Revenue Service
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