Legacy Private Trust Company presents an overview of the Internal Revenue Service’s recently announced inflation adjustments. These adjustments, detailed in Revenue Procedure 2023-34, are crucial for taxpayers preparing for the 2024 tax year. Here’s what you need to know about these adjustments, which will primarily affect tax returns filed in 2025.
Increased Standard Deductions
A significant change is the increase in standard deductions. For married couples filing jointly, the standard deduction for the tax year 2024 is set at $29,200, reflecting a $1,500 rise from the previous year. This adjustment is intended to ease the tax burden for married couples.
For single taxpayers and those married but filing separately, the standard deduction has been increased to $14,600, up by $750 from 2023. Heads of households will see their standard deduction rise to $21,900, a $1,100 increase from the 2023 amount. These increases in standard deductions are designed to keep pace with inflation, ensuring increased living costs do not unduly burden taxpayers.
Tax Rate Brackets for 2024
The tax year 2024 continues to feature the top tax rate of 37% for single filers earning above $609,350 and married couples filing jointly with incomes exceeding $731,200. However, other tax brackets have also seen adjustments:
- 35% for incomes over $243,725 (singles) and $487,450 (joint filers).
- 32% for incomes above $191,950 (singles) and $383,900 (joint filers).
- 24% for incomes exceeding $100,525 (singles) and $201,050 (joint filers).
- 22% for incomes over $47,150 (singles) and $94,300 (joint filers).
- 12% for incomes above $11,600 (singles) and $23,200 (joint filers).
- The lowest rate, 10%, applies to single individuals earning $11,600 or less and $23,200 for married couples filing jointly.
These bracket adjustments are intended to provide relief and fairness in taxation, acknowledging the diverse income ranges of American taxpayers.
Alternative Minimum Tax (AMT) Adjustments
For 2024, the AMT exemption amount is $85,700, phasing out at $609,350 for singles and $133,300 for married couples filing jointly, with phase-out beginning at $1,218,700. The 2023 exemption was $81,300 ($126,500 for joint filers), with phase-outs starting at lower thresholds. The AMT is designed to ensure that high-income individuals and entities pay a minimum amount of tax, maintaining an equitable tax system.
Estate and Gift Tax Exclusions
The basic exclusion amount for estates of decedents who die during 2024 is $13,610,000, up from $12,920,000 in 2023. This increase is significant for estate planning and wealth transfer, offering more flexibility and opportunities for tax-efficient inheritance planning.
Furthermore, the annual exclusion for gifts will rise to $18,000 for 2024, up from $17,000 in 2023. This adjustment allows individuals to give more to others without incurring a taxable event, promoting generosity while considering inflationary impacts.
Adoption Credit Enhancements
Lastly, in a move that underscores its support for adoptive families, the IRS has increased the maximum adoption credit for the tax year 2024 to $16,810, up from $15,950 in 2023. This upward adjustment is a response to the considerable financial burden often associated with the adoption process. The adoption credit is designed to provide substantial relief to families undertaking this life-changing journey. It covers a range of expenses, including adoption fees, court costs, attorney fees, traveling expenses (when necessary), and other expenses directly related to the legal adoption of a child.
This increase not only eases the financial strain on adoptive families but also encourages more individuals and couples to consider adoption, making a significant difference in the lives of children in need of a permanent, loving home.
Navigating the Changes
These adjustments reflect the IRS’s response to inflationary trends and are essential for taxpayers to understand for effective financial planning. Legacy Private Trust Company recommends consulting with tax professionals to navigate these changes effectively, ensuring compliance and optimization of tax strategies.
If you are a Legacy client and have questions, please do not hesitate to contact your Legacy advisor. If you are not a Legacy client and are interested in learning more about our approach to personalized wealth management, please contact us at 920.967.5020 or connect@lptrust.com.
This newsletter is provided for informational purposes only.
It is not intended as legal, accounting, or financial planning advice.
