Finance Forward Blog
The New Tax Brackets for 2024
Now that the 2023 tax season has wrapped up, it might seem early to start thinking about next year's taxes. However, early engagement with the recently announced IRS adjustments for tax year 2024 can play a critical role in your financial strategy. Here’s a breakdown of what you need to know about tax brackets and other key changes to prepare effectively.
The Basics of Tax Brackets
Tax brackets are defined ranges of income taxed at specific rates, which increases as your total income rises in a given year. Importantly, each portion of income is taxed at the corresponding rate only within its bracket. You can think of each “chunk” of your overall income being subject to its own level of taxes, as shown below.
Updated Tax Brackets for 2024
Understanding the new tax brackets is essential for strategic financial planning:
10% for income up to $11,000 ($22,000 for married couples filing jointly)
12% for income exceeding $11,000 ($22,000 for married couples filing jointly)
22% for income exceeding $44,725 ($89,450 for married couples filing jointly)
24% for income exceeding $95,375 ($190,750 for married couples filing jointly)
32% for income exceeding $182,100 ($364,200 for married couples filing jointly)
35% for income exceeding $231,250 ($462,500 for married couples filing jointly)
37% for income exceeding $578,125 ($693,750 for married couples filing jointly)
In a progressive tax rate system, each additional dollar of income is taxed at a higher rate. For example, if your income is $95,376, here's how your tax is calculated as a single filer:
The first $11,000 is taxed at 10%: $1,100 in tax.
The next amount from $11,001 to $44,725 is taxed at 12%: $4,046.88 in tax.
The amount from $44,726 to $95,375 is taxed at 22%: $11,143.18 in tax.
The $1 over $95,375 falls into the next bracket and is taxed at 24%: $0.24 in tax.
Thus, only the portion of your income that falls into each bracket is taxed at the corresponding rate, not your entire income.
Rising Standard Deductions
The standard deduction, which reduces your taxable income, will also increase for 2024:
Single filers: Now $14,600, up from $13,850.
Married filing jointly: Now $29,200, up from $27,700.
Head of household: Now $21,800, up from $20,800.
Why It's Smart to Plan Now
Addressing tax changes well before the next season can enhance your financial planning:
Financial Forecasting: Early awareness of your estimated tax liabilities allows for more effective budgeting and saving.
Adjust Withholdings: To avoid owing too much or overpaying come tax time, you might need to adjust your withholdings based on the new brackets.
Leverage Deductions and Credits: Knowing about deductions and credit shifts early on helps you plan for charitable giving, investments, and other financial decisions that could influence your tax outcomes.
Conclusion
Although the last tax season is still fresh, now is the ideal time to begin preparing for the next. At J. Hall & Company, we advocate for proactive tax planning to help our clients manage their tax obligations effectively. By understanding these updates early, you can ensure a smoother tax process in 2025. Should you need more tailored advice or a deeper dive into these changes, our team is ready to assist. You can book a call with us right here.