Proper tax planning requires an awareness of what's new and changed from last year, and there are lots of tax law changes and updates for 2024 that you need to know.
To help, we put together a list of the most important tax law changes and adjustments for 2024, with some related items grouped. Pay attention to these changes because they can hurt or help your bottom line. Use this information now so you can hold on to more of your hard-earned money when it's time to file your 2024 federal income tax return (in early 2025).
Retirement plan changes
The SECURE 2.0 Act of 2022 bolsters retirement savings, with over 90 provisions with different effective dates. Among the changes that take effect this year are the following.
- People under age 59½ can take more penalty-free early withdrawals from IRAs and 401(k)s. Up to $10,000 for domestic abuse victims and $1,000 for emergencies can be taken without paying the 10% additional tax. Regular income tax would still be due.
- Leftover funds in 529 education accounts can be rolled over tax-free to a Roth IRA. There is a $ 35,000-lifetime cap. Yearly rollover amounts can’t exceed the annual pay-in limit for Roth IRAs, which is $7,000 for 2024. And the 529 account must have been open for more than 15 years.
- Roth 401(k) owners no longer need to take required minimum distributions. This conforms to the rule that applies to owners of Roth IRAs.
- Plan sponsors can create emergency savings accounts for participants, who could then make Roth pay-ins (on an after-tax basis) to that savings account within the plan. A participant’s account balance can’t exceed $2,500.
- Student loan relief can be offered through workplace retirement plans. SECURE 2.0 allows employer 401(k) matches conditioned on student loan repayments made by employees.
- The qualified charitable distribution cap is indexed for inflation so that IRA owners 70½ and older can transfer up to $105,000 in 2024 from their IRAs directly to charity without having to pay tax on the withdrawal.
For more information on the above changes, see Kiplinger’s summary of SECURE 2.0 retirement plan changes.
Additionally, key dollar limits on workplace retirement plans and IRAs increase in 2024. The maximum 401(k) contribution is $23,000. People born before 1975 can contribute an extra $7,500. These limits also apply to 403(b)s and 457 plans.
SIMPLEs have a $16,000 cap, plus $3,500 for individuals age 50 and older.
The 2024 contribution cap for traditional IRAs and Roth IRAs is $7,000, plus $1,000 as an additional catch-up contribution for individuals age 50 and older.
The income ceilings on Roth IRA pay-ins are higher for 2024. Contributions phase out at adjusted gross incomes of $230,000 to $240,000 for joint filers and $146,000 to $161,000 for single filers.
2024 deduction phaseouts for traditional IRAs range from adjusted gross incomes of $123,000 to $143,000 for joint filers covered by 401(k)s and $77,000 to $87,000 for single filers and heads of household. If only one spouse is covered by the plan, the phaseout range for deducting pay-ins for the uncovered spouse is $230,000 to $240,000.
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Tax credits and deductions 2024
EV tax credit
Eligible buyers of qualifying EVs can opt to monetize up to the $7,500 federal EV tax credit. starting in 2024, by transferring it to the dealer at the time of purchase, thus lowering the amount the buyer pays for the car. Buyers can otherwise elect to claim the break on their federal tax return that they will file in the subsequent year. For more information, see: EV Tax Credits Changed Again on Jan. 1.
IRS guidance requires auto dealers to register on the IRS’s online tool, IRS Energy Credits Online, to receive advance credit payments from eligible EV sales. Buyers who opt for the advance credit to lower the cost of the car will have to repay it when filing their Form 1040 if their modified AGI exceeds the limit for taking the credit.
Adoption tax credit
The adoption credit is taken on up to $16,810 of qualified expenses in 2024. The full credit is available for a special-needs adoption even if it costs less. The credit phases out for filers with modified AGIs over $252,150 and ends at $292,150
Standard Deduction
Standard deduction amounts for 2024 have been inflation-adjusted and are higher than they were last year. For more information, see Standard Deduction 2024 Amounts and The Extra Standard Deduction for People Age 65 and Older.
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Key tax amounts 2024
Tax brackets
The income tax brackets for individuals are much wider for 2024 because of inflation during the 2023 fiscal year. Tax rates are unchanged. To view income tax brackets for the 2023 and 2024 tax years, see 2023 and 2024 Tax Brackets and Federal Income Tax Rates.
Capital gains and qualified dividends
The favorable tax rates on long-term capital gains and qualified dividends do not change. But the income thresholds to qualify for the various rates go up for 2024. The 0% tax rate applies at taxable incomes up to $94,050 for joint filers, $63,000 for heads of household and $47,025 for single filers. The 20% tax rate starts at $583,751 for joint filers, $551,351 for heads of household and $518,901 for single filers. The 15% tax rate is for filers with taxable incomes between the 0% and 20% break point.
Minimum tax
AMT exemptions rise for 2024 to $133,300 for couples and $85,700 for singles and household heads. The exemption phaseout zones start at $1,218,700 for couples and $609,350 for others. The 28% AMT rate kicks in above $232,600.
Kiddie tax
The kiddie tax has less bite in 2024. The first $1,300 of unearned income of a child under age 19 (under age 24 if a full-time student) is tax-free. The next $1,300 is taxed at the child’s rate. Any excess is taxed at the parent’s rate.
Fringe Benefits
Employees covered by health flexible savings accounts can defer up to $3,200. The cap on tax-free employer-provided parking for 2024 is $315 a month. The exclusion for mass transit passes and commuter vans match that amount. U.S. taxpayers working abroad have a $126,500 income exclusion for 2024, provided they meet all the eligibility requirements.
HSAs
There are record-high HSA contribution limits for 2024:
- Individuals can contribute up to $4,150 to their HSA accounts for 2024.
- Families can contribute up to $8,300.
For more information about 2024 medical savings account contribution limits, see FSA and HSA Contribution Limits for 2024.
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Gift and estate tax exclusion
The lifetime estate and gift tax exemption for 2024 is $13,610,000.
More estate tax liability qualifies for an installment payment tax break. If one or more closely held businesses make up greater than 35% of a 2024 estate, as much as $740,000 of tax can be deferred, and the IRS will charge only 2% interest.
The annual gift tax exclusion for 2024 is $18,000 per donee. That means in 2024, you can gift up to $18,000 ($36,000 if your spouse agrees) to each child, grandchild or any other person without having to file a gift tax return or tap your lifetime estate and gift tax exemption. Annual gifts over the exclusion amount will trigger filing of a gift tax return for 2024, but no gift tax will be due unless your total lifetime gifts exceed $13,610,000.
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Business tax changes
Depreciation
First-year bonus depreciation isn’t as valuable in 2024. Last year, businesses could deduct 80% of the cost of new and used qualifying business assets with lives of 20 years or less. This year, the 80% write-off decreases to 60%.
But Section 179 expensing is higher. $1,220,000 of assets can be expensed in 2024.
- This limit phases out dollar for dollar once more than $3,050,000 of assets are put into use in 2024.
- Note that the amount of business assets expensed can’t exceed the business’s taxable income. Bonus depreciation doesn’t have this rule.
Pass-through income
A key dollar threshold on the 20% deduction for pass-through income rises in 2024. Self-employeds and owners of LLCs, S corporations and other pass-throughs can deduct 20% of their qualified business income, subject to limitations for individuals with taxable incomes of more than $383,900 for joint filers and $191,950 for all others.
Accounting method
More companies can use the cash method of accounting. For taxable years beginning in 2024, C corporations with average annual gross receipts of $30 million or less over the previous three years can use the cash method. This threshold also applies to partnerships and LLCs that have C corporations as owners.
Mileage rate
The 2024 standard mileage rate for business driving is 67 cents per mile. The mileage allowance for medical travel and military moves is 21 cents per mile in 2024. The charitable driving rate is fixed by law and stays put at 14 cents a mile.
Clean-energy credits
Certain clean-energy credits in the Inflation Reduction Act can be monetized. Businesses may elect to transfer 11 of the credits to unrelated third parties for cash. State and local government and their instrumentalities and tax-exempt organizations can elect to treat 12 of the energy-savings credits as a payment of federal income tax and receive an income tax refund for the amount that exceeds any taxes they owe.
Related Content
-State Tax Changes: What’s New for 2024
-What is the Gift Tax Exclusion for 2024?
Take Advantage of the Lifetime Estate and Gift Tax Exemption While You Still Can
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