January 2024 Updates
Happy new year (a little late, I know)!
This is my first newsletter in some time, however, my 2024 goal is consistency and increased communication. Unbelievably, we are already 1/12th through 2024. With that comes a new tax season, including updated or new IRS rules and receiving the previous year's tax documents in the mail.
There were many changes to the tax code this year. I am summarizing some of the important ones below.
The standard deduction in tax year 2024 rises to $29,200 from $27,700 for those who are married and filing jointly. The standard deduction for single filers and married and filing separately rises to $14,600 from $13,850. For head of household, the standard deduction rises to $21,900 from $20,800.
If you are 65 or older and single or head of household, you may take an additional deduction of $1,950. If married and filing jointly or separately, you may take an additional $1,550.
Changes on the horizon
The Tax Cuts and Jobs Act (TCJA) of 2017 significantly increased the standard deduction, simplifying the filing process, as it eliminated the need for many taxpayers to itemize. But it also scrapped the personal exemption.
Unless extended, please be aware that many provisions of the TCJA will expire at the end of 2025.
Among the expected changes:
Individual income tax rates will revert to their 2017 levels.
The standard deduction will be cut roughly in half, the personal exemption will return, and the child tax credit will be reduced.
The estate tax exemption will be reduced.
The special 20% tax deduction for pass-through businesses will disappear.
The cap of $10,000 on state and local income taxes, which is not adjusted for inflation, will disappear. Those who are married but file separately may deduct up to $5,000 if they itemize.
Favorable treatment for long-term capital gains is a cherished tax break for investors. Long-term capital gains, such as the profit on the sale of a stock held for more than one year, are taxed at a more favorable rate than short-term gains. A short-term gain is taxed as if it were ordinary income.
The TCJA includes a 20% deduction for pass-through businesses. Limits on the deduction begin phasing in for taxpayers with income above $191,950 and $383,900 for joint filers in 2024.
Other taxes you may be subject to or credits you may capture.
High-income taxpayers are subject to the net investment income tax of 3.8%, levied on the lesser of net investment income or modified adjusted gross income over $200,000 for single filers and $250,000 for married filing jointly. These amounts have never been indexed to inflation.
In general, net investment income includes but is not limited to interest, dividends, capital gains, rental and royalty income, and non-qualified annuities, according to the IRS.
Net investment income generally does not include wages, unemployment compensation, Social Security Benefits, alimony, and most self-employment income.
Exclusions for the estate, gift, and generation-skipping transfer will increase from $12,920,000 in 2023 to $13,610,000 in 2024.
Higher lifetime-exemption amounts are set to expire at the end of 2025. Unless Congress makes these changes permanent, after 2025 the exemption will revert to the $5.49 million exemption (adjusted for inflation).
The kiddie tax applies to unearned income, such as dividends or interest, for kids under the age of 19 and college students under 24.
Your child will be required to pay taxes on their unearned income in 2024, but if that amount is more than $1,300 but less than $13,000, you may be able to elect to include that income on your return rather than file a separate return for your child.
The child tax credit is $2,000 for each child that qualifies. The child must be under 17 years old at the end of the year. The refundable amount rises to $1,700 for tax year 2024, up from $1,600 in 2023.
A refundable credit means that you can take advantage of the credit above your tax liability, in this case, up to $1,700.
For the tax year 2024, you can have a modified adjusted gross income (MAGI) of up to $252,150 and may qualify for the adoption credit of $16,810 if you incur adoption-related expenses.
The amount of the credit is reduced for taxpayers with a MAGI of more than $252,150 and is eliminated when your MAGI tops $292,150.
The credit is nonrefundable, so the amount cannot exceed your tax liability. However, you may apply any excess credit amount to future years, up to five years.
401(k), 403(b), 457, etc.
The Qualified Plan limits have increased for 2024 is $23,000 for those under age 50 and $7,500 for those age 50 or older.
This is up from 2023’s limit of $22,500 for those under 50. The 50+ catch-up did not change from 2023.
The IRA contribution limit for 2024 is $7,000 for those under age 50, and $8,000 for those age 50 or older.
IRA contributions
The IRA contribution limit for 2024 is $7,000 for those under age 50, and $8,000 for those age 50 or older.
You can make 2024 IRA contributions until the federal tax filing deadline for income earned in 2024.
This is up from 2023’s limits of $6,500 for those under age 50, and $7,500 for those age 50 or older. You can make 2023 IRA contributions until your April 15th federal tax deadline for income earned in 2023.
Peering into 2024
Expect surprises. As I always say, no one has a crystal ball. No one can accurately see into the future. As we saw in 2023, expect the unexpected.
We believe that having a diversified portfolio is the best way to protect yourself against market volatility and achieve your financial objectives. While it won’t completely shelter you from market pullbacks, it has historically proven to be a strong strategy that can help you reach your financial goals.
Although volatility can be unsettling, it is often temporary, as demonstrated by the failure of Silicon Valley Bank last year and, so far, the ongoing war in the Middle East and Ukraine.
If we were to take a stab at issues on the front burner, we’d start with the economy.
If inflation continues to slow down, it will take pressure off the Federal Reserve, and rate cuts could come sooner rather than later.
Investors are currently betting on the soft-landing scenario. In this scenario, pricing pressure eases while economic growth slows down slightly, avoiding a big hit to corporate profits. This scenario helped drive stocks last year.
I trust you have found this review to be informative. If you have any inquiries or wish to discuss any other matters, please don’t hesitate to contact me.
Thank you for choosing us as your financial planner. We are honored and humbled by your trust.
As we bid farewell to 2023, may the New Year bring you excitement, adventure, and fulfillment. May the year create cherished memories and be filled with joy. Happy New Year from all of us!
Shane Callahan may be reached at 720-696-0265 or Shane@EnduranceWealthPlanning.com
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*Past Market Performance is no guarantee of future investment performance or success