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Monday, October 2nd, 2023

The income tax brackets, standard deduction amounts, and many other tax items are adjusted annually for cost-of-living increases. These adjustments reflect the average chained Consumer Price Index (CPI) for all-urban customers (C-CPI-U) for the 12-month period ending the previous August 31. The August 2023 CPI summary has been released by the Labor Department. Using the chained CPI for August 2023 (and the preceding 11 months), several news services have the 2024 indexed amounts. These adjustments may be of interest to you. What follows are some of the new inflation adjusted rates and items.

Income tax rate schedules. 

Some of the tax rate schedules for 2024 will be as follows.

For married individuals filing joint returns and surviving spouses:

  • If taxable income is not over $23,200; the tax is 10% of taxable income
  • If taxable income is over $23,200 but not over $94,300; the tax is $2,320.00 plus 12% of the amount over $23,200
  • If taxable income is over $94,300 but not over $201,050; the tax is $10,852.00 plus 22% of the amount over $94,300
  • If taxable income is over $201,050 but not over $383,900; the tax is $34,337.00 plus 24% of the amount over $201,050
  • If taxable income is over $383,900 but not over $487,450; the tax is $78,221.00 plus 32% of the amount over $383,900
  • If taxable income is over $487,450 but not over $731,200; the tax is $111,357.00 plus 35% of the amount over $487,450
  • If taxable income is over $731,200; the tax is $196,669.50 plus 37% of the amount over $731,200

For single individuals:

  • If taxable income is not over $11,600; the tax is 10% of taxable income
  • If taxable income is over $11,600 but not over $47,150; the tax is $1,160.00 plus 12% of the amount over $11,600
  • If taxable income is over $47,150 but not over $100,525; the tax is $5,426.00 plus 22% of the amount over $47,150
  • If taxable income is over $100,525 but not over $191,950; the tax is $17,168.50 plus 24% of the amount over $100,525
  • If taxable income is over $191,950 but not over $243,725; the tax is $39,110.50 plus 32% of the amount over $191,950
  • If taxable income is over $243,725 but not over $609,350; the tax is $55,678.50 plus 35% of the amount over $243,725
  • If taxable income is over $609,350; the tax is $183,647.25 plus 37% of the amount over $609,350

For estates and trusts:

  • If taxable income is less than $3,100; the tax is 10% of taxable income
  • If taxable income is over $3,100 but not over $11,150; the tax is $310.00 plus 24% of the excess over $3,100
  • If taxable income is over $11,150 but not over $15,200; the tax is $2,242.00 plus 35% of the excess over $11,150
  • If taxable income is over $15,200; the tax is $3,659.50, plus 37% of the excess over $15,200

Standard deductions.

The basic standard deduction for 2024 will be:

  • Joint return or surviving spouse: $29,200 (up from $27,700 for 2023)
  • Single individuals: $14,600 (up from $13,850 for 2023)
  • Dependents: for an individual who can be claimed as a dependent on another’s return:
    $1,300 (up from $1,250 in 2023), or $450 (up from $400 in 2023) plus the individual’s earned income,
    whichever is greater. However, the standard deduction may not exceed the regular standard deduction for that individual.
  • Older and blind taxpayers: the additional standard deduction:
    for married taxpayers 65 or over or blind: $1,550 (up from $1,500 in 2023)
    for a single taxpayer or head of household 65 or over or blind: $1,950 (up from $1,850 in 2023).

Capital gains.

For 2024, the capital gains tax rates will be:

  • The 0% capital gains rate applies to adjusted net capital gain of up to:
    Joint returns and surviving spouses: $94,050 (up from $89,250 in 2023)
    Single individuals: $47,025 (up from $44,625 in 2023)
    Estates and trusts: $3,150 (up from $3,000 in 2023)
  • The 15% capital gains tax rate applies to adjusted net capital gain over the amount subject to the 0% rate, and up to:
    Joint returns and surviving spouses: $583,750 (up from $553,850 in 2023)
    Single individuals filers: $518,900 (up from $492,300 in 2023)
    Estates and trusts: $15,450 (up from $14,650 in 2023)
  • The 20% capital gains tax rate applies to adjusted net capital gain over the amount subject to the 15% maximum amounts:

Estate and Gift Tax.

  • Estate and gift tax lifetime exclusion amount: $13,610,000 (up from $12,920,000 in 2023)
  • Gift tax annual exclusion amount: $18,000 (up from $17,000 in 2023)

 Kiddie tax.

The exemption from the kiddie tax for 2024 will be $2,600 ($2,500 in 2023). A parent will be able to elect to include a child’s income on the parent’s return for 2024 if the child’s income is more than $1,300 and less than $13,000 (up from $1,250 and $12,500 in 2023).

AMT figures.

For 2024, the AMT exemption amounts will be:

  • Joint returns or surviving spouses: $133,300 (up from $126,500 in 2023)
    Single individuals; $85,700 (up from $81,300 in 2023)
    Estates and trusts: $29,900 (up from $28,400 in 2023)

For 2024, the excess taxable income above which the 28% tax rate applies will be $232,600 for joint returns, single individuals, and estates and trusts (up from $220,700 in 2023).

For 2024, the amounts used under Code Sec. 55(d)(3) to determine the phaseout of the AMT exemption amounts will be:

  • Joint returns or surviving spouses: $1,218,700 (up from $1,156,300 in 2023)
    Single individuals: $609,350 (up from $578,150 in 2023)
    Estates and trusts: $99,700 (up from $94,600 in 2023)

Income-based limitations on Sec. 199A qualified business income deduction.

For 2024, taxpayers with taxable income above these amounts are subject to certain limitations on the Code Sec. 199A deduction:

  • Joint returns or surviving spouses: $383,850 (up from $364,200)
    Single individuals: $191,900 (up from $182,100)

Excess business loss disallowance rule.  Under Code Sec. 461(l) , an excess business loss for the tax year is the excess of aggregate deductions of the taxpayer attributable to the taxpayer’s trades and businesses, over the sum of aggregate gross income or gain of the taxpayer plus a threshold amount. For 2024, the threshold amount is $610,000 for married individuals filing jointly (up from $578,000 in 2023) and $305,000 for other individuals (up from $289,000 in 2023).

Educator expenses. For 2024, eligible elementary and secondary school teachers can claim an above-the line deduction for up to $300 per year of expenses paid for books and certain other supplies used in the classroom ($300 in 2023).

Interest exclusion for higher education.  For 2024, the phase-out for excluding interest on U.S. savings bonds redeemed to pay qualified higher education expenses will begin at modified adjusted gross income (MAGI) above $96,800 ($145,200 on a joint return). For 2023, the corresponding figures were $91,850 and $137,800.

Qualified transportation fringe benefits. For 2024, an employee will be able to exclude up to $315 (up from $300 in 2023) a month for qualified parking expenses, and up to $315 a month (up from $300 in 2023) of the combined value of transit passes and transportation in a commuter highway vehicle.

Student loan interest deduction.  For 2024, the deduction phases out ratably for taxpayers other than joint filers with MAGI between $80,000 and $95,000 (up from $75,000 and $90,000 in 2023), and MAGI between $165,000 and $195,000 for joint filers (up from $155,000 and $185,000 in 2023).

MAGI limits for making deductible contributions by active plan participants to traditional IRAs. In general, an individual who isn’t an active participant in certain employer-sponsored retirement plans, and whose spouse isn’t an active participant, may make an annual deductible cash contribution to an IRA up to the lesser of: (1) an inflation-adjusted statutory dollar limit, or (2) 100% of the compensation that’s includible in his or her gross income for that year. For 2024, the statutory dollar limit is $7,000 (up from $6,500 in 2023), plus an additional $1,000 catch-up for those age 50 or older ($1,000 in 2023).

  • If the individual (or his or her spouse) is an active plan participant, the deduction phases out over a specified dollar range of MAGI. For taxpayers filing joint returns, the otherwise allowable deductible contribution will be phased out ratably for 2024 for MAGI between $123,000 and $143,000 (up from $116,000 and $136,000 in 2023).
  • For 2024, for single taxpayers and heads of household, the otherwise allowable deductible contribution will be phased out ratably for MAGI between $77,000 and $87,000 (up from $73,000 and $83,000 in 2023). For married taxpayers filing separate returns, the otherwise allowable deductible contribution will be phased out ratably for MAGI between $0 and $10,000 ($0 and $10,000 in 2023).
  • For a married taxpayer who is not an active plan participant but whose spouse is such a participant, the otherwise allowable deductible contribution will be phased out ratably for 2024 for MAGI between $230,000 and $240,000 (up from $218,000 and $228,000 in 2023).

MAGI limits for making contributions to Roth IRAs. Individuals may make nondeductible contributions to a Roth IRA, subject to the overall limit on IRA contributions.

The maximum annual contribution that can be made to a Roth IRA is phased out for taxpayers with MAGI over certain levels for the tax year. For taxpayers filing joint returns, the otherwise allowable contributions to a Roth IRA will be phased out ratably for 2024 for MAGI between $230,000 and $240,000 (up from $218,000 and $228,000 in 2023).For single taxpayers and heads of household, it will be phased out ratably for MAGI between $146,000 and $161,000 (up from $138,000 and $153,000 in 2023). For married taxpayers filing separate returns, the otherwise allowable contribution will continue to be phased out ratably for MAGI between $0 and $10,000 ($0 and $10,000 in 2023).

 

 

Article by JF “Jack” Howell III
Sprouse Shrader Smith PLLC
Published October 2, 2023


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