Did you know?

The 16th Amendment was ratified in 1913 and established Congress’ right to impose a federal income tax. Crazy to think back in 1913 less than 1% of the population paid it and the rate was only 1% of net income due to generous exemptions and deductions. Times have changed…

For 2024, the top rate is 37%, not 1%. Below is the tax table and as always, if you have a specific tax question, feel free to check with your tax advisor.

1. Tax brackets and tax rates have changed vs 2023. The chart below highlights changes between 2023 and 2024 tax brackets.

Marginal tax brackets

For example, if you are married, filing a joint return, and your taxable income is $50,000, you would pay 10% to the federal government on income up to $23,200. You would pay 12% on the remainder of your income up to $50,000.

2. The standard deduction in 2024 rises to $29,200 from $27,700 for those who are married and filing jointly. The standard deduction for single filers and married and filing separately rises to $14,600 from $13,850. For head of household, the standard deduction rises to $21,900 from $20,800.

If you are 65 or older and single or head of household, you may take an additional deduction of $1,950. If married and filing jointly or separately, you may take an additional $1,550.

3. Favorable treatment for long-term capital gains is a cherished tax break for investors. The tax code is designed to encourage investors to invest and take advantage of long-term capital gains. As such the profit on the sale of a stock is at a more favorable rate if held over a year vs. say six or nine months. A short-term gain is taxed as if it were ordinary income. One area we like to double check, especially for joint filers who have income well under $94,050, since they might be able to take advantage of a 0% long-term capital gain rate. See the table below.

Long-Term Capital Gains Rates and Qualified Dividends

4. Exclusions for the estate, gift, and generation-skipping transfer will increase from $12,920,000 in 2023 to $13,610,000 in 2024.

5. Higher lifetime exemption amounts are set to expire at the end of 2025. Unless Congress makes these changes permanent, after 2025 the exemption will revert to the $5.49 million exemption (adjusted for inflation).

6. The IRA contribution limit for 2024 is $7,000 for those under age 50, and $8,000 for those age 50 or older.

This is up from 2023’s limits of $6,500 for those under age 50, and $7,500 for those age 50 or older. You can make 2023 IRA contributions until your April 15th federal tax deadline for income earned in 2023.

7. The SEP-IRA wage limit also increases. You can contribute up to 25% of the employee’s total compensation or a maximum of $69,000 for the 2024 tax year, whichever is less. That’s up from $66,000 in 2023. If you’re self-employed, your contributions are generally limited to 20% of your net income.

8. 2023 ended up way better than most analysts predicted. On average, strategists predicted roughly a 2% decline for the S&P 500 Index in 2023, according to Bloomberg. In the end, with most of it occurring in the 4th quarter, 2023 turned out to be really good.

Major Indexes 2023 Returns

9. 2024 could start with continued inflation pressure coming off the Federal Reserve, which could allow rate cuts sooner than later. No specific prediction at this time, but many analysts are jumping on the rate cut bandwagon for 2024. Regardless of what the Fed does near the start of the year, we do feel there will be more volatility heading into the end of the year.

Thanks again for your continued trust and confidence. I don’t make New Year’s Resolutions, but I am hoping to do more writing this year so we’ll see. If you have any questions, please give our office a call. Terry, George, Ryan, and myself are available and look forward to serving you in 2024. Happy New Year!

Phil Guerrero, CFP®

Phil Guerrero, CFP®

President & Wealth Advisor


Disclaimers / Sources:

Tax Brackets from Fidelity 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.