2024 Tax Year Updates for Individuals

The 2024 tax year introduces several updates for individuals that could impact your finances. These updates include changes to deductions, credits, and income thresholds. From deductions to credits, here’s what you need to know:

Home » 2024 Tax Year Updates for Individuals

January 16, 2025

Tax Brackets

Tax brackets have been adjusted to account for inflation, a common annual update to help offset rising costs. As a result, you can land in a lower tax bracket even if your income does not vary much compared to 2023. However, the same tax rates apply, ranging from 10% to 37%.

Standard Deduction

Good news for those who prefer simplicity: the standard deduction has increased again in 2024. For single filers, the deduction is now $14,600, and for married couples filing jointly, it’s $29,200. Additionally, the standard deduction for individuals who are 65 or older, blind, or both has also increased. As a result, these increases may reduce the need for itemizing deductions, especially for those with fewer deductible expenses.

Retirement Contribution Limits

Planning for retirement just got more rewarding. The contribution limit for 401(k) plans is $23,000 for 2024, up from $22,500 for 2023. In addition, those over 50 can contribute an extra $7,500 in catch-up contributions. Moreover, IRA contribution limits have increased to $7,000 and rise to $8,000 for those 50 or older.

Health Savings Accounts Contribution Limits

Health Savings Account (HSA) contribution limits have also increased. Individuals can now contribute up to $4,150, while families have a limit of $8,300. Those 55 and older can contribute an additional $1,000. Note that the deadline to contribute to an HSA is generally until the tax filing deadline, April 15.

Long-Term Capital Gains and Qualified Dividends

Capital gains refer to the profits from selling assets such as stocks and real estate. Also, long-term capital gains apply to assets held for more than a year. While tax rates on long-term capital gains and qualified dividends remain unchanged for 2024, the qualifying income thresholds have been adjusted for inflation. For instance, the tax rates for individual filers with a total taxable income in 2024 are as follows:

$47,025 or less: 0%
$47,026 – $518,900: 15%
Over $518,900: 20%

Kiddie Tax

For 2024, tax-free unearned income increased to $1,300 for children under the age of 19 or full-time students between the ages of 19 and 23. Specifically, unearned income includes taxable interest, ordinary dividends, and capital gains. The next $1,300 is taxed at the child’s rate. However, any unearned income above $2,600 will be taxed at the parent or guardians’ tax rate.

Qualified Business Income Deduction

Another 2024 tax update for individuals is the increase in income thresholds for the Qualified Business Income deduction. This deduction allows eligible taxpayers to deduct up to 20% of their qualified business income on their personal tax return. For 2024, the income phase-out thresholds are:

$383,900 for married filing jointly filers
$191,950 for other filers

Clean Vehicle Tax Credit

Starting in 2024, you can transfer the clean vehicle tax credit directly to the dealer, reducing the vehicle’s purchase price. Generally, to claim this option, you need to provide your Social Security Number and photo ID.

Student Loan Interest Deduction

The maximum student loan interest deduction remains $2,500. However, the income thresholds have shifted slightly for 2024.

The deduction begins to phase out when the Modified Adjusted Gross Income (MAGI) exceeds:

$80,000 for single filers
$165,000 for married filing jointly filers

The deduction completely phases out when the MAGI exceeds:

$95,000 for single filers
$195,000 for married filing jointly filers

Stay Informed: Maximize Your 2024 Tax Benefits with Proper Planning

These updates highlight the importance of staying informed. Ultimately, proper planning can help you maximize your deductions and credits, ensuring you’re well-prepared for the 2025 tax season.

References

IRS provides tax inflation adjustments for tax year 2024 | Internal Revenue Service. https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2024