|
IRS Announces 2024 Inflation Adjustments
(Parker Tax Publishing November 2023)
The IRS announced the tax year 2024 annual inflation adjustments for more than 60 tax provisions, including the tax rate schedules and other tax changes. The tax year 2024 adjustments generally are used on tax returns filed in 2025. Rev. Proc. 2023-34.
On November 9, the IRS announced the 2024 annual inflation adjustments for more than 60 tax provisions, including the tax rate schedules, the standard deduction, and other tax-related items. The 2024 adjustments generally apply to tax returns filed in 2025. To the extent amendments to the Code are enacted for 2024 after November 9, 2023, the IRS advises taxpayers to consult additional guidance to determine whether such adjustments remain applicable for 2024.
Observation: The 2024 adjustments for several key items such as the standard deduction and the tax brackets represent an increase of approximately 5.4 percent over the 2023 amounts.
Below is a summary of the key inflation adjusted numbers for 2024 from Rev. Proc. 2023-34.
Taxable Income Subject to the Maximum Rates
For tax year 2024, the top tax rate is 37 percent for single taxpayers with incomes greater than $609,350 ($609,350 for heads of households, $731,200 for married couples filing jointly). The tax rates for income levels less than those are:
(1) 35 percent for incomes over $243,725 (single and married filing separately), $243,700 (head of household), and $487,450 (married couples filing jointly);
(2) 32 percent for incomes over $191,950 (single, head of household, and married filing separately) and $383,900 (married couples filing jointly);
(3) 24 percent for incomes over $100,525 (single and married filing separately), $100,500 (head of household) and $201,050 (married couples filing jointly);
(4) 22 percent for incomes over $47,150 (single and married filing separately), $63,100 (head of household), and $94,300 (married couples filing jointly);
(5) 12 percent for incomes over $11,600 (single and married filing separately), $16,550 (head of household), and $23,200 (married couples filing jointly);
(6) the lowest rate is 10 percent for incomes of $11,600 or less (single and married filing separately), $16,550 or less (head of household), and $23,200 or less (married couples filing jointly).
The maximum estate and trust tax rate is 37 percent on income over $15,200.
Maximum Capital Gains Rate
For tax years beginning in 2024, the maximum zero capital gain tax rate amount is $94,050 in the case of a joint return or surviving spouse, $63,000 in the case of an individual who is a head of household, $47,025 in the case of any other individual (other than an estate or trust), and $3,150 in the case of an estate or trust. The maximum 15-percent capital gain tax rate amount is $583,750 in the case of a joint return or surviving spouse, $291,850 in the case of a married individual filing a separate return, $551,350 in the case of an individual who is the head of a household, $518,900 in the case of any other individual (other than an estate or trust), and $15,450 in the case of an estate or trust.
Unearned Income of Minor Children
For 2024, the amount in Code Sec. 1(g)(4)(A)(ii)(I), which is used to reduce the net unearned income reported on the child's return that is subject to the "kiddie tax," is $1,300. This $1,300 amount is the same as the amount provided in Code Sec. 63(c)(5)(A), as adjusted for inflation. The same $1,300 amount is used for purposes of Code Sec. 1(g)(7) in determining whether a parent may elect to include a child's gross income in the parent's gross income and to calculate the "kiddie tax". For example, one of the requirements for the parental election is that a child's gross income is more than the amount referenced in Code Sec. 1(g)(4)(A)(ii)(I) but less than 10 times that amount. Thus, a child's gross income for 2024 must be more than $1,300 but less than $13,000 for a parent to make the election.
Standard Deduction Amounts
The standard deduction for married filing jointly is $29,200 for 2024. For single taxpayers and married individuals filing separately, the standard deduction is $14,600 for 2024, and for heads of households, the standard deduction is $21,900 for 2024.
The standard deduction amount under for an individual who may be claimed as a dependent by another taxpayer cannot exceed the greater of (1) $1,300, or (2) the sum of $450 and the individual's earned income.
For 2024, the additional standard deduction amount for the aged (i.e., age 65 or older) or the blind is $1,550. That additional standard deduction amount is increased to $1,950 if the individual is also unmarried and not a surviving spouse.
Itemized Deduction Limitation
As with 2023, there is no overall limitation on itemized deductions. The limitation on itemized deductions was eliminated by the Tax Cuts and Jobs Act of 2017 (TCJA) through 2025.
Personal Exemptions
As with 2023, no personal exemptions are allowed for 2024. Personal exemptions were eliminated by the TCJA through 2025.
Gross Income Limitation for a Qualifying Relative
For tax years beginning in 2024, the exemption amount referenced in Code Sec. 152(d)(1)(B) is $5,050.
Alternative Minimum Tax
The alternative minimum tax (AMT) exemption amount under Code Sec. 55(d)(1) for 2024 for unmarried individuals other than surviving spouses, married individuals filing joint returns and surviving spouses, and married individuals filing separate returns is $85,700, $133,300, and $66,650, respectively. The exemption for estates and trusts is $29,900. Under Code Sec. 55(b)(1), the excess taxable income above which the 28 percent AMT tax rate applies is $116,300 for married filing separately and $232,600 for all other returns.
The AMT exemption begins to phase out at $609,350 for unmarried individuals other than surviving spouses and married individuals filing separate returns, $1,218,700 for married individuals filing joint returns and surviving spouses, and $99,700 for estates and trusts.
Earned Income Credit
The 2024 maximum earned income credit amount is $7,830 for taxpayers filing jointly who have three or more qualifying children, up from a total of $7,430 for 2023. The maximum credit for a taxpayer with no qualifying children is $632, up from $600 for 2023. Rev. Proc. 2023-34 has a table providing maximum credit amounts for other categories, income thresholds, and phase-outs.
Qualified Business Income
The qualified business income deduction under Code Sec. 199A is subject to certain limitations for taxpayers whose income exceeds a threshold amount. For tax years beginning in 2024, the threshold amount under Code Sec. 199A(e)(2) is $383,900 for married filing joint returns, $191,950 for married filing separate returns, and $191,950 for single and head of household returns.
Limitation on Use of Cash Method of Accounting
For tax years beginning in 2024, a corporation or partnership meets the gross receipts test of Code Sec. 448(c) for any tax year if the average annual gross receipts of such entity for the three-tax-year period ending with the tax year which precedes such tax year does not exceed $30 million.
Threshold for Excess Business Loss
For tax years beginning in 2024, in determining a taxpayer's excess business loss, the amount under Code Sec. 461(l)(3)(A)(ii)(II) is $305,000 ($610,000 for joint returns).
Estate Tax Exclusion
Estates of decedents who die during 2024 have a basic exclusion amount of $13,610,000.
Valuation of Qualified Real Property in Decedent's Gross Estate
For an estate of a decedent dying in calendar year 2024, if the executor elects to use the special use valuation method under Code Sec. 2032A for qualified real property, the aggregate decrease in the value of qualified real property resulting from electing to use Code Sec. 2032A for purposes of the estate tax cannot exceed $1,390,000.
Interest on a Certain Portion of the Estate Tax Payable in Installments
For an estate of a decedent dying in calendar year 2024, the dollar amount used to determine the "2-percent portion" (for purposes of calculating interest under Code Sec. 6601(j)) of the estate tax extended as provided in Code Sec. 6166 is $1,850,000.
Penalty for Failure to File Tax Return
In the case of any return required to be filed in 2025, the amount of the addition to tax under Code Sec. 6651(a) for failure to file a tax return within 60 days of the due date of such return (determined with regard to any extensions of time for filing) must not be less than the lesser of $510 or 100 percent of the amount required to be shown as tax on such returns.
Penalty for Failure to File a Partnership Return
In the case of any partnership return required to be filed in 2025, the dollar amount used to determine the amount of the penalty under Code Sec. 6698(b)(1) is $245.
Penalty for Failure to File an S Corporation
In the case of any S corporation return required to be filed in 2025, the dollar amount used to determine the amount of the penalty under Code Sec. 6699(b)(1) is $245.
Limit on Employee Contributions to FSAs
The annual dollar limit for 2024 on employee contributions to employer-sponsored healthcare flexible spending arrangements (FSA) is $3,200. If the cafeteria plan permits the carryover of unused amounts, the maximum carryover amount is $640.
Small Employer Health Insurance Credit
Under the small business health care tax credit, the maximum credit for 2024 is phased out based on the employer's number of full-time equivalent employees in excess of 10 and the employer's average annual wages in excess of $32,400.
Gift Tax Exclusions
The 2024 annual exclusion for gifts is $18,000. For 2024, the exclusion from tax on a gift to a spouse who is not a U.S. citizen is $185,000.
AMT Exemption for a Child Subject to the Kiddie Tax
For 2024, for a child to whom the "kiddie tax" applies, the exemption amount under Code Sec. 55(d) and Code Sec. 59(j) for purposes of the alternative minimum tax may not exceed the sum of (1) the child's earned income for the tax year, plus (2) $9,250.
Election to Expense Certain Depreciable Assets
For 2024, the aggregate cost of any Code Sec. 179 property that a taxpayer elects to treat as an expense cannot exceed $1,220,000. The $1,220,000 limitation is reduced (but not below zero) by the amount the cost of Code Sec. 179 property placed in service during the 2024 tax year exceeds $3,050,000.
Energy Efficient Commercial Building Deduction
For tax years beginning in 2024, the applicable dollar value used to determine the maximum allowance of the deduction under Code Sec. 179D(b) is $0.57 increased (but not above $1.13) by $0.02 for each percentage point by which the total annual energy and power costs for the building are certified to be reduced by a percentage greater than 25 percent. In addition, for tax years beginning in 2024, the applicable dollar value used to determine the increased deduction amount for certain property under Code Sec. 179D(b)(3)(A) is $2.83 increased (but not above $5.65) by $0.11 for each percentage point by which the total annual energy and power costs for the building are certified to be reduced by a percentage greater than 25 percent.
Foreign Earned Income Exclusion Amount
For tax years beginning in 2024, the foreign earned income exclusion amount under Code Sec. 911(b)(2)(D)(i) is $126,500.
U.S. Savings Bond Interest Exclusion for Higher Education Expenses
The exclusion from income for U.S. savings bond interest for taxpayers who pay qualified higher education expenses, begins to phase out for modified adjusted gross income above $145,200 for joint returns and $96,800 for all other returns. The exclusion is completely phased out for modified adjusted gross income of $175,200 for joint returns and $111,800 for all other returns.
Interest on Education Loans
For tax years beginning in 2024, the $2,500 maximum deduction for interest paid on qualified education loans begins to phase out for taxpayers with modified adjusted gross income in excess of $80,000 and $165,000 for joint returns, and is completely phased out for taxpayers with modified adjusted gross income of $95,000 or more and $195,000 or more for joint returns.
Insubstantial Benefit Limitations for Contributions Associated with Charitable Fund-Raising Campaigns
For tax years beginning in 2024, for purposes of defining the term "unrelated trade or business" for certain exempt organizations under Code Sec. 513(h)(2), "low cost articles" are articles costing $13.20 or less.
For tax years beginning in 2024, under Code Sec. 170, the $5, $25, and $50 guidelines in Section 3 of Rev. Proc. 90-12, for the value of insubstantial benefits that may be received by a donor in return for a contribution, without causing the contribution to fail to be fully deductible, are $13.20, $66.00, and $132, respectively.
Medical Savings Accounts
For 2024, for purposes of medical savings accounts, a "high deductible health plan" means, for self-only coverage, a health plan that has an annual deductible that is not less than $2,800 and not more than $4,150, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $5,550.
For family coverage in tax years beginning in 2024, the term "high deductible health plan" means a health plan that has an annual deductible that is not less than $5,550 and not more than $8,350, and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $10,200.
Long-Term Care Premiums
For 2024, the limitations for eligible long-term care premiums includible in the term "medical care" are: for individuals 40 years or less before the close of the tax year, $470; for individuals more than 40 but not more than 50, $880; more than 50 but not more than 60, $1,760; more than 60 but not more than 70, $4,710; and more than 70, $5,880.
Periodic Payments Received under Qualified Long-Term Care Insurance Contracts or under Certain Life Insurance Contracts
For calendar year 2024, the stated dollar amount of the per diem limitation under Code Sec. 7702B(d)(4), regarding periodic payments received under a qualified long-term care insurance contract or periodic payments received under a life insurance contract that are treated as paid by reason of the death of a chronically ill individual, is $410.
Attorney Fee Award Limitation
The attorney fee award limitation is $240 per hour.
Child Adoptions
The credit allowed for an adoption in 2024 of a child with special needs is $16,810. The maximum credit allowed for other adoptions is the amount of qualified adoption expenses up to $16,810. The available adoption credit begins to phase out for taxpayers with modified adjusted gross income in excess of $252,150 and is completely phased out for taxpayers with modified adjusted gross income of $292,150 or more.
Qualified Transportation Fringe Benefit
For tax years beginning in 2024, the monthly limitation regarding the aggregate fringe benefit exclusion amount for transportation in a commuter highway vehicle and any transit pass is $315. The monthly limitation for the fringe benefit exclusion amount for qualified parking is $315.
Certain Expenses of Elementary and Secondary School Teachers
For tax years beginning in 2024, the amount of the deduction for expenses paid or incurred by an eligible educator in connection with books, supplies (other than nonathletic supplies for courses of instruction in health or physical education), computer equipment (including related software and services) and other equipment, and supplementary materials used by an eligible educator in the classroom is $300.
Transportation Mainline Pipeline Construction Industry Optional Expense Substantiation Rules for Payments to Employees under Accountable Plan
For calendar year 2024, an eligible employer may pay certain welders and heavy equipment mechanics an amount of up to $22 per hour for rig-related expenses that are deemed substantiated under an accountable plan if paid in accordance with Rev. Proc. 2002-41. If the employer provides fuel or otherwise reimburses fuel expenses, up to $13 per hour is deemed substantiated if paid under Rev. Proc. 2002-41.
Refundable Credit for Coverage under a Qualified Health Plan
For tax years beginning in 2024, the limitation on tax imposed for excess advance credit payments under Code Sec. 36B where household income is less than 200% of the poverty line is $375 for unmarried individuals other than surviving spouses and heads of household and $750 for all other taxpayers. Where household income is at least 200% of the poverty line but less than 300%, those amounts are $950 and $1,900. Where household income is at least 300% but less than 400%, those amounts are $1,575 and $3,150.
Expatriation to Avoid Tax
For calendar year 2024, under Code Sec. 877A(g)(1)(A), unless an exception under Code Sec. 877A(g)(1)(B) applies, an individual is a covered expatriate if the individual's "average annual net income tax" for the five tax years ending before the expatriation date is more than $201,000.
Tax Responsibilities of Expatriation
For tax years beginning in 2024, the amount that would be includible in the gross income of a covered expatriate by reason of Code Sec. 877A(a)(1) is reduced (but not below zero) by $866,000.
Notice of Large Gifts Received from Foreign Persons
For tax years beginning in 2024, recipients of gifts from certain foreign persons must report these gifts if the aggregate value of gifts received in the tax year exceeds $19,570.
Persons Against Whom a Federal Tax Lien Is Not Valid
For calendar year 2024, a federal tax lien is not valid against (1) certain purchasers under Code Sec. 6323(b)(4) who purchased personal property in a casual sale for less than $1,900, or (2) a mechanic's lienor under Code Sec. 6323(b)(7) who repaired or improved certain residential property if the contract price with the owner is not more than $9,520.
Property Exempt from Levy
For calendar year 2024, the value of property exempt from levy under Code Sec. 6334(a)(2) (i.e., fuel, provisions, furniture, and other household personal effects, as well as arms for personal use, livestock, and poultry) cannot exceed $11,390. The value of property exempt from levy under Code Sec. 6334(a)(3) (books and tools necessary for the trade, business, or profession of the taxpayer) cannot exceed $5,700.
Revocation or Denial of Passport in Case of Certain Tax Delinquencies
For calendar year 2024, the amount of a serious delinquent tax debt for which a taxpayer's passport may be revoked or denied is $62,000.
Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.
Parker Tax Pro Library - An Affordable Professional Tax Research Solution. www.parkertaxpublishing.com
We hope you find our professional tax research articles comprehensive and informative. Parker Tax Pro Library gives you unlimited online access all of our past Biweekly Tax Bulletins, 22 volumes of expert analysis, 250 Client Letters, Bob Jennings Practice Aids, time saving election statements and our comprehensive, fully updated primary source library.
Try Our Easy, Powerful Search Engine
A Professional Tax Research Solution that gives you instant access to 22 volumes of expert analysis and 185,000 authoritative source documents. But having access won’t help if you can’t quickly and easily find the materials that answer your questions. That’s where Parker’s search engine – and it’s uncanny knack for finding the right documents – comes into play
Things that take half a dozen steps in other products take two steps in ours. Search results come up instantly and browsing them is a cinch. So is linking from Parker’s analysis to practice aids and cited primary source documents. Parker’s powerful, user-friendly search engine ensures that you quickly find what you need every time you visit Our Tax Research Library.
Dear Tax Professional,
My name is James Levey, and a few years back I founded a company named Kleinrock Publishing. I started Kleinrock out of frustration with the prohibitively high prices and difficult search engines of BNA, CCH, and RIA tax research products ... kind of reminiscent of the situation practitioners face today.
Now that Kleinrock has disappeared into CCH, prices are soaring again and ease-of-use has fallen by the wayside. The needs of smaller firms and sole practitioners are simply not being met.
To address the problem, I’ve partnered with a group of highly talented tax writers to create Parker Tax Publishing ... a company dedicated to the idea that comprehensive, authoritative tax information service can be both easy-to-use and highly affordable.
Our product, the Parker Tax Pro Library, is breathtaking in its scope. Check out the contents listing to the left to get a sense of all the valuable material you'll have access to when you subscribe.
Or better yet, take a minute to sign yourself up for a free trial, so you can experience first-hand just how easy it is to get results with the Pro Library!
Sincerely,
James Levey
Parker Tax Pro Library - An Affordable Professional Tax Research Solution. www.parkertaxpublishing.com
|
