By Jeffrey R. Wolfe, Senior Vice President and Manager, Wealth Planning Strategies
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Once again, our Private Client Services group will share tax planning ideas with our “Tax Tip Tuesdays” blog series. As we come out of one of the most unique snow months in recent memory, we may be entering one of the most unique tax years in some time as well.
For the 2024 tax year, there is little change other than inflationary adjustments. The standard deduction has increased to $15,000 for individual filers, while married taxpayers climb to $30,000.[1] The state and local tax (“SALT”) deductions remain capped at $10,000 regardless of filing status, meaning most taxpayers will not itemize their tax returns.
The top income tax bracket stays at 37%, applying to individuals with more than $626,350 in income; $751,600 for married taxpayers. For those “in the middle,” the middle tax bracket calls for a 24% rate. That rate begins at $103,350 single/$206,700 married. You need more than $197,300 single/$394,600 married to climb into the next bracket.
All of that said, the current income tax regime is scheduled to sunset on December 31, 2025, and will return to 2017 tax law, adjusted for inflation. While this potential sunset won’t affect your 2024 tax return, this lingering “cliff” may greatly affect your tax return for next year, and consequently your planning during 2025 as well.
The “sunset” means that unless Congress acts otherwise, all tax brackets except the lowest bracket will rise in 2026, with the top tax bracket returning to 39.6%, and the middle tax bracket jumping to 28%. Standard deductions will be reduced by about half, but personal exemptions return. The SALT limitations will also be eliminated, and many itemized deductions of the past reemerge. The general effect of these changes will mean that most taxpayers will see an increase in their tax bill.
We do not know what Congress plans, but the rhetoric theme is to try to keep the current tax situation, or even reduce taxes further. While the Republicans control both houses of Congress and the White House, the margins are razor thin, meaning changing the law may prove difficult. That said, our series will focus on the issues to address for this year’s tax season. However, we will also raise planning issues to consider for the 2025 tax year should the sunset occur.
Look for new blog topics every Tuesday until April 15, and remember your financial advisor is happy to work with you and your tax advisor to make filing your taxes as painless as possible. Happy Tax Season!
IMPORTANT DISCLOSURES: The information provided is based on internal and external sources that are considered reliable; however, the accuracy of this information is not guaranteed. This piece is intended to provide accurate information regarding the subject matter discussed. It is made available with the understanding that Benjamin F. Edwards is not engaged in rendering legal, accounting or tax preparation services. Specific questions on taxes or legal matters as they relate to your individual situation should be directed to your tax or legal professional.
[1] All references to “married taxpayers” will be defined as married filing jointly. An additional standard deduction applies for taxpayers who are aged 65 and older or blind.