As we approach the 2024 tax year, it’s important to stay informed about any changes that may affect your tax planning. In this article, we’ll discuss the key tax changes and amounts to be aware of for the 2024 tax year.
Changes to Tax Rates
Individual Tax Rates
One of the most significant changes for the 2024 tax year is the potential for individual tax rates to increase. The current tax rates, which were implemented in 2018, are set to expire at the end of 2025. However, with the current state of the economy and potential changes in political leadership, it’s possible that these tax rates could be changed before then.
If tax rates do increase, it’s likely that the highest tax bracket will see the biggest change, with the top rate potentially increasing from 37% to 39.6%. This could have a significant impact on high-income earners and those with large capital gains.
Corporate Tax Rates
The corporate tax rate, which was reduced to 21% in 2018, is also set to expire at the end of 2025. However, there is a possibility that this rate could increase before then. Some proposals have suggested raising the corporate tax rate to 28%, while others have suggested a more moderate increase to 25%.
Changes to Deductions and Credits
State and Local Tax Deduction
The state and local tax (SALT) deduction, which was capped at $10,000 in 2018, is set to expire at the end of 2025. However, there is a possibility that this cap could be removed before then. This would be beneficial for taxpayers in high-tax states who were negatively impacted by the cap.
Child Tax Credit
The child tax credit, which was increased to $2,000 per child in 2018, is also set to expire at the end of 2025. However, there is a possibility that this credit could be extended or made permanent. This would be beneficial for families with children, as it would provide a larger tax break.
Earned Income Tax Credit
The earned income tax credit (EITC), which provides a tax credit for low to moderate-income individuals and families, is set to expire at the end of 2025. However, there is a possibility that this credit could be expanded or made permanent. This would provide additional tax relief for those who qualify.
Changes to Retirement Accounts
Contribution Limits
The contribution limits for retirement accounts, such as 401(k)s and IRAs, are set to increase for the 2024 tax year. The contribution limit for 401(k)s is set to increase from $19,500 to $20,000, while the limit for IRAs is set to increase from $6,000 to $6,500.
Required Minimum Distributions
The age for required minimum distributions (RMDs) is set to increase from 72 to 75 for the 2024 tax year. This means that individuals will not be required to take distributions from their retirement accounts until they reach the age of 75.
Changes to LLC Taxes
Pass-Through Deduction
The pass-through deduction, which allows owners of pass-through entities, such as LLCs, to deduct up to 20% of their qualified business income, is set to expire at the end of 2025. However, there is a possibility that this deduction could be extended or made permanent.
Self-Employment Tax
The self-employment tax, which is currently 15.3%, is set to increase for the 2024 tax year. The exact amount of the increase is not yet known, but it is expected to be a significant increase. This could have a significant impact on self-employed individuals and LLC owners.
Key Amounts for the 2024 Tax Year
Standard Deduction
The standard deduction for the 2024 tax year is set to increase to $12,400 for single filers and $24,800 for married couples filing jointly.
Personal Exemption
The personal exemption, which was eliminated in 2018, is not expected to be reinstated for the 2024 tax year.
Alternative Minimum Tax (AMT) Exemption
The AMT exemption, which was increased in 2018, is set to expire at the end of 2025. However, there is a possibility that this exemption could be extended or made permanent.
Estate Tax Exemption
The estate tax exemption, which was increased in 2018, is set to expire at the end of 2025. However, there is a possibility that this exemption could be extended or made permanent.
How to Prepare for the 2024 Tax Year
Stay Informed
The best way to prepare for the 2024 tax year is to stay informed about any potential changes. Keep an eye on tax news and updates, and consult with a tax professional if necessary.
Plan Ahead
If you anticipate any changes to your income or tax situation for the 2024 tax year, it’s important to plan ahead. Consider consulting with a tax professional to determine the best course of action for your specific situation.
Review Your Retirement Accounts
With the potential changes to retirement account contribution limits and RMD ages, it’s important to review your retirement savings plan and make any necessary adjustments.
Conclusion
As we approach the 2024 tax year, it’s important to stay informed about any potential changes that may affect your tax planning. Keep an eye on tax news and updates, and consult with a tax professional if necessary. By staying informed and planning ahead, you can ensure that you are prepared for any changes that may come in the 2024 tax year.
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