Something to keep in your back pocket for tax year 2024

The IRS has announced key inflation adjustments for the tax year 2024, which will impact tax returns filed in 2025. Here are the significant changes:

1. **Standard Deduction Increases**: For married couples filing jointly, the standard deduction is up by $1,500 to $29,200. For single taxpayers and those married filing separately, it rises to $14,600, a $750 increase. Heads of households will see an increase to $21,900, up by $1,100.

2. **Marginal Tax Rates**: The top tax rate remains at 37% for single individuals earning above $609,350 and married couples filing jointly with incomes over $731,200. Other rates range from 10% to 35%, applying to various income brackets.

3. **Alternative Minimum Tax (AMT)**: The AMT exemption for 2024 is $85,700, phasing out at higher income levels, compared to $81,300 in 2023.

4. **Earned Income Tax Credit (EITC)**: The maximum EITC for taxpayers with three or more qualifying children increases to $7,830.

5. **Qualified Transportation Fringe Benefits and Parking**: The monthly limitation rises to $315.

6. **Health Flexible Spending Arrangements**: The employee salary reduction contribution limit increases to $3,200, with a maximum carryover amount of $640.

7. **Medical Savings Account (MSA)**: Changes in minimum and maximum deductibles and out-of-pocket expenses for both self-only and family coverages.

8. **Foreign Earned Income Exclusion**: The exclusion amount is now $126,500.

9. **Estate and Gift Tax Exclusions**: The basic exclusion amount for estates of decedents is $13,610,000, and the annual exclusion for gifts is $18,000.

10. **Adoption Credit**: The maximum credit for 2024 is $16,810.

Items unchanged include the personal exemption, which remains at zero, no limitation on itemized deductions, and the unadjusted modified adjusted gross income threshold for the Lifetime Learning Credit.

Additionally, a noteworthy change is the reinstatement of the Hazardous Substance Superfund financing rate for crude oil and petroleum products, with an adjusted tax rate of $0.26 per barrel for 2024.

For a detailed understanding of how these adjustments may affect individual and business tax planning, it’s advisable to consult with tax professionals.

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