With the dawn of a new year comes a wave of changes to tax laws and fresh opportunities for tax minimization within your financial planning! The recent release of IRS figures for 2024 signals the perfect time to embark on your Financial & Tax Planning journey for the new year, adopting a proactive approach to tax minimization.
At CayDen, our clients frequently hear us emphasize the value of proactive planning, which translates into saving hundreds to thousands of dollars on taxes both in the present and future—an easy financial win-win. In light of the palpable impact of inflation over the past couple of years, which may have adversely affected your short-term savings rate, it's reassuring to witness the IRS providing inflation adjustments that can directly benefit our financial situations. The simple prescription? Plan strategically to maximize your situation and minimize your taxes. Let's delve into the 2024 financial and tax planning opportunities.
Planning Highlights of the IRS Updated Financial Figures for 2024:
(Click the carrot next to the figures below to read more about the changes)
$1,500 Increase To The Standard Deduction
The standard deduction for married couples filing jointly for tax year 2024 rises to $29,200, an increase of $1,500 from tax year 2023.
For single taxpayers and married individuals filing separately, the standard deduction rises to $14,600 for 2024, an increase of $750 from 2023;
and for heads of households, the standard deduction will be $21,900 for tax year 2024, an increase of $1,100 from the amount for tax year 2023.
$500 Increase To Individual Retirement Accounts Contribution Limits
The limit on annual contributions to an IRA increased to $7,000, up from $6,500. The IRA catch‑up contribution limit for individuals aged 50 and over was amended under the SECURE 2.0 Act of 2022 (SECURE 2.0) to include an annual cost‑of‑living adjustment but remains $1,000 for 2024.
$500 Increase To Company Retirement Account Contribution Limits
The contribution limit for employees who participate in 401(k), 403(b), and most 457 plans, as well as the federal government's Thrift Savings Plan is increased to $23,000, up from $22,500.
$400 Increase To Earned Income Tax Credit
The tax year 2024 maximum Earned Income Tax Credit amount is $7,830 for qualifying taxpayers who have three or more qualifying children, an increase from $7,430 for tax year 2023.
Increases To The Marginal Rates, But Top Rate Remains 37%
35% for incomes over $243,725 ($487,450 for married couples filing jointly) 32% for incomes over $191,950 ($383,900 for married couples filing jointly) 24% for incomes over $100,525 ($201,050 for married couples filing jointly) 22% for incomes over $47,150 ($94,300 for married couples filing jointly) 12% for incomes over $11,600 ($23,200 for married couples filing jointly)
The lowest rate is 10% for incomes of single individuals with incomes of $11,600 or less ($23,200 for married couples filing jointly).
$1,000 Increase To Gifting Limits
The annual exclusion for gifts increases to $18,000 for calendar year 2024, increased from $17,000 for calendar year 2023.
For 2024, individuals under a high deductible health plan (HDHP) will have an HSA contribution limit of $4,150. The HSA contribution limit for family coverage will be $8,300.
The items listed above represent just a snapshot of the IRS-announced adjustments for tax year 2024. These figures are universally and critically important for successful financial planning and wealth-building, especially during the accumulation phase of your financial journey. While these adjustments are significant, it's essential to recognize that your specific situation may present unique tax planning opportunities. Therefore, we strongly recommend thorough research into tax law changes or, even better, consulting with a professional tax advisor to tailor your strategy and maximize your specific financial situation.
Big Tax Minimization Opportunities For Individuals & Couples
For an individual maximizing contributions to both a 401(k) and HSA, the potential reduction in taxable income is an impressive $27,150.
A couple, married filing jointly, could save and reduce their taxable income by a substantial $54,300. This translates to tremendous tax savings that benefit both the present and future. Your contributions not only decrease your income today but also grow tax-deferred into the future.
According to CayDen Wealth Management's Senior Wealth Advisor and CFP® professional, Shane Dennehy, "Maximizing retirement accounts each year provides a dollar-for-dollar reduction in your taxable income, helping you pay less in taxes and can also prevent you from entering a higher marginal tax bracket, or even lower the bracket you are in." This underscores the importance of regular financial planning and tax minimization to adapt to the dynamic nature of life and changing laws. Proactively planning your household finances can result in savings ranging from hundreds to thousands of dollars on taxes, providing you with more resources to allocate towards what matters most to you.
In essence, proactive planning is a gift to both your present and future selves. With the IRS providing inflation-adjusted figures, the ball is now in your court. Engaging in proactive financial and tax planning not only positions you to pay less in taxes but also to save more money and foster the growth of your wealth. Seeking professional help? Don't hesitate to reach out. Your financial future awaits.
About the author: Daniel Caycedo is an Investment & Tax Strategist and Wealth Management Advisor for CayDen Wealth Management, a Colorado registered investment advisory firm with offices located in Broomfield, Colorado and Charlotte, North Carolina. Daniel works out of CayDen Wealth Management's Charlotte office, providing virtual, fiduciary, comprehensive wealth management and tax services for high performing professionals and their families. Services include proactive Financial Planning, Investment Management, & Tax Services.