The Internal Revenue Service (IRS) has recently announced a series of inflation adjustments affecting over 60 tax provisions for the 2024 tax year. Small business owners should take note of these changes, as they could significantly impact their financial planning and tax strategies. Revenue Procedure 2023-34 offers comprehensive details on these adjustments.
Key Updates for 2024
One of the notable changes for 2024 stems from the Inflation Reduction Act, which reinstates the Hazardous Substance Superfund financing rate for crude oil and certain petroleum products. This adjustment sets the tax rate at $0.26 per barrel for crude oil or petroleum products entered after December 31, 2016.
Standard Deduction Increases
The standard deduction is set to rise in 2024, providing some relief to taxpayers. For married couples filing jointly, the deduction will be $29,200, up by $1,500 from 2023. Single taxpayers and those married but filing separately will see their standard deduction rise to $14,600, an increase of $750. Heads of households will benefit from a deduction of $21,900, up by $1,100.
Marginal Tax Rates
The top tax rate for 2024 remains at 37% for single taxpayers earning above $609,350 and married couples filing jointly with incomes exceeding $731,200. Other marginal rates are adjusted as follows:
- 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 single individuals with incomes of $11,600 or less ($23,200 for married couples filing jointly)
Alternative Minimum Tax and EITC Adjustments
The Alternative Minimum Tax (AMT) exemption for 2024 is set at $85,700, phasing out at $609,350 ($133,300 for married couples, phasing out at $1,218,700). The maximum Earned Income Tax Credit (EITC) amount is increased to $7,830 for taxpayers with three or more qualifying children.
Other Significant Changes
- The monthly limit for qualified transportation fringe benefits and parking rises to $315.
- Employee salary reductions for health flexible spending arrangements cap at $3,200, with a carryover limit of $640.
- Medical Savings Account requirements are adjusted, with minimum annual deductibles set at $2,800 for self-coverage and $5,550 for family coverage.
- The foreign earned income exclusion increases to $126,500.
- The basic exclusion amount for estates of decedents who die during 2024 is now $13,610,000.
- The annual exclusion for gifts is raised to $18,000.
- The maximum credit for adoptions is now $16,810.
Items Unaffected by Indexing
Certain items remain unchanged, including the personal exemption, which stays at zero following its elimination in the Tax Cuts and Jobs Act. Similarly, there’s no limitation on itemized deductions, and the modified adjusted gross income amount for the Lifetime Learning Credit remains unadjusted.
These adjustments, reflecting the changing economic landscape, have significant implications for small businesses and their financial planning. Staying informed and possibly consulting with a tax professional can help business owners navigate these changes effectively.
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