Taxpayers likely have end-of-year tax preparation for 2023 looming, but they must not underestimate the importance of tax management and tax planning in the coming months and years. Just as 2023 ushered in changes to federal tax guidelines, so will the income tax brackets for 2024, as recently announced by the Internal Revenue Service.
An expert in tax planning and compliance best handles tax preparation (Dallas area and beyond.) In addition, this is where Waters Hardy can be a valuable resource for the imminent tax season and many more to come.
Serving as a trusted and experienced CPA (Dallas, Texas-based but with clients throughout the country), our team understands the advantages of tax planning well in advance. We effectively use this database of knowledge to put money back into your pocket.
In the meantime, here’s what to know about the new income tax brackets for 2024 and how you can plan now to make the most out of these upcoming adjustments.
The 2023 Tax Brackets
Inflation has been a persistent issue since the Coronavirus pandemic. Therefore, in 2023, the IRS responded by providing tax inflation adjustments for individuals and married couples filing jointly.
For 2023 federal taxes (which will be due by April 18, 2024, barring an extension), the tax brackets are as follows:
- 37% for individual incomes over $578,125 (or $693,750 for married couples filing jointly.)
- 35% for individual incomes over $231,250 (or $462,500 for married couples filing jointly.)
- 32% for individual incomes over $182,100 ($364,200 for married couples filing jointly)
- 24% for individual incomes over $95,375 ($190,750 for married couples filing jointly)
- 22% for individual incomes over $44,725 ($89,450 for married couples filing jointly)
- 12% for individual incomes over $11,000 ($22,000 for married couples filing jointly)
The 2024 Tax Brackets
You can expect another increase in your 2024 federal taxes due to inflation. For 2024 federal taxes (which will be due in April 2025), the tax brackets will be as follows:
- 37% for individual incomes over $609,350 (or $731,200 for married couples filing jointly).
- 35% for individual incomes over $243,725 (or $487,450 for married couples filing jointly)
- 32% for individual incomes over $191,950 (or $383,900 for married couples filing jointly)
- 24% for individual incomes over $100,525 (or $201,050 for married couples filing jointly)
- 22% for individual incomes over $47,150 (or $94,300 for married couples filing jointly)
- 12% for individual incomes over $11,600 or ($23,200 for married couples filing jointly)
The Importance of Tax Planning for 2024 – What to Consider
Most taxpayers won’t need to worry about their 2024 taxes until later in the next year. However, these increases could impact your tax preparation now, and your regular income once January 1 rolls around.
Your Paycheck
When the new year arrives, you may discover that you have fallen into a lower tax bracket than in 2023, especially if your income or salary has remained the same. For example, if you routinely make $45,000 a year and file as an individual, you would be in the 22% tax bracket in 2023. Therefore, taxes deducted from your paycheck for the past year will be represented accordingly. But in 2024, $45,000 is included in the 12% tax bracket. That means you’ll be responsible for less federal taxes starting in January 2024.
Your Tax Planning Strategies
If you are one of the many Americans in one of these borderline scenarios, – you fall into a higher tax bracket in 2023. However, you will move to a lower tax bracket in 2024. There are steps you can take by the end of the year to minimize the taxes you are owed.
For example, 2023 might be a good year to spend money on tax-deductible items or initiatives if your annual income is just above a specific and higher tax bracket limit. This can be work expenses (particularly if you are an independent contractor, freelancer, or otherwise subject to self-employment income), education-related, retirement contribution related, or more.
The end goal is to make your net income slightly lower in 2023 – to push you to a lower federal tax bracket – and slightly higher in 2024 while still staying within the same tax bracket. For example, suppose you had $45,000 in income in 2023 and were planning to make an estimated $1,000 repairs or buy new home office equipment, (assuming your office is indeed tax deductible). In that case, you may want to pay for these upgrades by the end of 2023 instead of early 2024.
Also, keep in mind that there are a lot of additional changes that are expected in the months and years ahead, which could also help put money back into your pocket. For example, starting in 2024, you’ll receive a 3.2% cost-of-living-adjustment if you collect Social Security. There is also a higher maximum for the Earned Income Tax Credit on the horizon, an increase to the annual exclusion for gifts, and waves of other changes that may prove beneficial, depending on your unique situation.
Be Prepared for 2024 and Beyond with Waters Hardy
Tax laws are constantly changing. Ideally, the increased tax brackets may be good news for many Americans – especially those on the borderline between two brackets – but remember, these parameters are always evolving. The strategies you employ now should take the next several years into account (and optimally longer) to enjoy years of saving money on your annual taxes instead of minimal savings today.
This is why you need an expert CPA to do the heavy lifting to understand these evolving scenarios and take the best advantage of the changes ahead. At Waters Hardy, we are continually monitoring these adjustments and new guidelines to ensure that these changes result in long-term benefits for our clients.
Have questions about your unique financial situation and how it may be affected by the adjustments ahead? Then, reach out to Waters Hardy. With an expert at your side, you can rest assured that you’ll maximize your savings come April 2024 and for many years to come.