As the calendar turns to 2024, the IRS has announced several inflation adjustments that will impact various aspects of the tax code. These adjustments are crucial for taxpayers to comprehend, as they can influence exemptions, credits, and exclusions, shaping the financial landscape for individuals and families. Earlier, we discussed the tax brackets and standard deductions for tax year 2024. In this article, we’ll delve into the IRS inflation adjustments for tax year 2024.
Alternative Minimum Tax (AMT) Exemption
The Alternative Minimum Tax is designed to ensure that high-income individuals, corporations, trusts, and estates pay at least a minimum amount of tax, regardless of deductions. The AMT exemption amount is subject to inflation adjustments, and in 2024, taxpayers will see changes in this critical threshold.
The IRS has increased the AMT exemption for the tax year 2024 to $85,700, up from $81,300 in 2023. This exemption phases out at $609,350. Married couples filing jointly have an AMT exemption amount of $133,300. Phase outs will begin at $1,218,700. These are increases from tax year 2023’s amounts of $126,500 and $1,156,300 respectively. This adjustment aims to prevent middle-income taxpayers from being inadvertently subject to the AMT due to inflation-driven income growth.
Earned Income Tax Credit (EITC)
The Earned Income Tax Credit (EITC) is a refundable tax credit designed to assist low to moderate-income working individuals and families. The maximum EITC amount is determined based on income, filing status, and the number of qualifying children. Each year, the IRS adjusts these amounts accordingly to account for inflation.
For the tax year 2024, the maximum EITC amounts have been increased from $7,430 to $7,830. This adjustment reflects the IRS’s commitment to addressing the changing economic landscape. It helps to ensure that the EITC remains an effective tool in alleviating poverty for working individuals and families.
Gift Tax Exclusion
The gift tax is imposed on the transfer of property by one individual to another, often as part of estate planning. The gift tax exclusion represents the amount of money or property that an individual can give to another person without incurring gift tax. This exclusion is also subject to periodic adjustments to account for inflation.
In 2024, the IRS has adjusted the gift tax exclusion will increase from $17,000 to $18,000 per person per year. This adjustment can affect estate planning strategies, providing individuals with increased flexibility in transferring assets to their heirs.
Adoption Credit
The Adoption Credit is a tax credit provided to eligible taxpayers who incur qualified adoption expenses. This credit helps ease the financial burden associated with adopting a child and is subject to periodic adjustments.
For the tax year 2024, the IRS has made inflation-related adjustments to the Adoption Credit. The credit is increasing from $15,950 to $16,810. This adjustment recognizes the rising costs associated with adoption and provides meaningful support to families undertaking the adoption process.
Tax Help for Taxpayers in 2024
The adjustments listed in this article are only a handful out of dozens the IRS has published in Revenue Procedure 2023-24 on their website. As taxpayers navigate the ever-evolving landscape of tax regulations, understanding the implications of inflation adjustments is essential. The 2024 IRS inflation adjustments reflect the government’s commitment to maintaining fairness and relevance in the tax system. You should stay informed about these changes and consult with tax professionals to optimize their financial strategies in light of these adjustments. It’s never too early for tax planning. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.
As we usher in the new year, it’s that time again when individuals and businesses eagerly await the release of the IRS tax brackets and standard deductions for the upcoming tax year. These figures play a pivotal role in determining the amount of tax liability for taxpayers across the nation. Let’s take a closer look at what has been announced for the 2024 IRS tax brackets and standard deductions.
Understanding Tax Brackets
As we know, the tax system in the U.S. operates on a progressive scale. This means that individuals with higher incomes are subject to higher tax rates. The IRS divides income into different brackets, each with its corresponding tax rate. As economic conditions fluctuate, the IRS regularly adjusts these brackets to ensure they keep pace with inflation. The following figures are for tax year 2024. In other words, these brackets and standard deductions will be used on 2025 tax returns.
Single Filer 2024 Tax Brackets
For single filers in tax year 2024, the tax brackets are as follows:
For those who file as head of household, the brackets are:
Rate
Taxable Income
Tax
10%
Income up to $16,550
10% of the taxable income
12%
Income between $16,551 and $63,100
$1,655 plus 12% of the excess over $16,550
22%
Income between $63,101 and $100,500
$7,241 plus 22% of the excess over $63,100
24%
Income between $100,501 and $191,950
$15,469 plus 24% of the excess over $100,500
32%
Income between $191,951 and $243,700
$37,417 plus 32% of the excess over $191,150
35%
Income between $243,701 and $609,350
$53,977 plus 35% of the excess over $243,700
37%
Income over $609,350
$181,955 plus 37% of the excess over $609,350
Married Filing Separately 2024 Tax Brackets
Taxpayers who are married but file separately have the following tax brackets:
Rate
Taxable Income
Tax
10%
Income up to $11,600
10% of the taxable income
12%
Income between $11,601 and $47,150
$1,160 plus 12% of the excess over $11,600
22%
Income between $47,151 and $100,525
$5,426 plus 22% of the excess over $47,150
24%
Income between $100,526 and $191,950
$17,169 plus 24% of the excess over $100,525
32%
Income between $191,951 and $243,725
$39,1101 plus 32% of the excess over $191,150
35%
Income between $243,726 and $365,600
$55,679 plus 35% of the excess over $243,725
37%
Income over $365,600
$98,335 plus 37% of the excess over $365,600
These brackets provide a framework for calculating the amount of income subject to federal income tax. This helps taxpayers better anticipate their tax obligations.
Standard Deductions for 2024
In addition to tax brackets, standard deductions are another critical component of the tax code. Standard deductions reduce a taxpayer’s taxable income and vary based on filing status. In tax year 2024, the standard deductions are as follows:
In addition, taxpayers who are age 65 and older, as well as those who are blind, can claim an additional $1,550 in 2024. This amount increases to $1,950 if they are unmarried and not a surviving spouse.
Taxpayers have the option to choose between itemizing deductions and claiming the standard deduction. Generally, individuals with relatively simple financial situations opt for the standard deduction, while those with significant deductible expenses may benefit from itemizing.
Tips for Minimizing Tax Liability
Stay Informed: Tax laws can change, and staying informed ensures you make decisions based on the most up-to-date information.
Explore Tax Credits: In addition to deductions, tax credits can significantly reduce your tax liability. Be sure to explore available credits for your specific circumstances.
Consider Itemizing: If you have substantial deductible expenses such as mortgage interest, medical expenses, or charitable contributions, consider itemizing instead of taking the standard deduction.
Consult a Tax Professional: For complex financial situations or for those seeking personalized advice, consulting with a tax professional can provide valuable insights.
Tax Help for the 2024 Tax Year
As we delve into the intricacies of the IRS 2024 tax brackets and standard deductions, it’s essential for taxpayers to grasp the impact these figures have on their financial obligations. Whether you’re an individual or a married couple, understanding these components can empower you to make informed decisions and navigate the tax landscape more effectively. Always verify the information from official IRS sources and consider seeking professional advice for your specific situation. Optima Tax Relief is the nation’s leading tax resolution firm with over $1 billion in resolved tax liabilities.
As veterans transition to civilian life, understanding the intricacies of the tax system becomes crucial for managing finances and maximizing returns. Fortunately, there are specific tax tips tailored to the unique circumstances of veterans that can help them make the most of available benefits and credits. In this article, we will explore key tax tips for veterans to help them navigate the tax landscape.
Understand Military Pay and Benefits
Veterans often receive various forms of income, including military retirement pay, disability benefits, and combat pay. Understanding the tax implications of each source of income is crucial. While military retirement pay is generally taxable, certain benefits may be partially or fully tax-free. Familiarize yourself with the tax treatment of each income stream to accurately report them on your tax return.
Disability Compensation
One of the most significant tax breaks for veterans is disability compensation. Veterans who have sustained service-related injuries or developed service-connected disabilities are eligible for tax-free disability compensation from the Department of Veterans Affairs (VA). These payments provide financial support and are not considered taxable income, offering veterans a means to maintain their standard of living despite any limitations imposed by their injuries.
Combat Pay Exclusion
Service members who receive combat pay may exclude this income from their taxable earnings. The Combat Pay Exclusion is designed to acknowledge the challenges and risks associated with serving in combat zones. By excluding combat pay from taxable income, veterans can potentially find themselves in a lower tax bracket, reducing their overall tax liability.
Utilize Veteran-Specific Tax Credits
Veterans may be eligible for specific tax credits. Explore these credits to potentially reduce your tax liability or enhance your business ventures.
Education Benefits
The GI Bill and other education-related benefits offer veterans the opportunity to pursue higher education without incurring significant financial burdens. These benefits cover tuition, fees, and provide a housing allowance, all of which are generally not subject to federal taxation. Additionally, some states offer additional tax breaks for veterans pursuing education, further easing the financial strain of obtaining a degree post-service.
Small Business and Employment Tax Credits
Veterans who start their own businesses or are employed by businesses that prioritize hiring veterans may be eligible for various tax credits. The Work Opportunity Tax Credit (WOTC) provides incentives to employers who hire veterans and other targeted groups. The WOTC is generally calculated at 40% of up to $24,000 in wages paid to veteran employees during their first year of employment, up to a maximum limit of $9,600. The employee must have performed at least 400 hours of work for that employer.
Earned Income Tax Credit
The EITC is a federal tax credit designed to assist low to moderate-income individuals and families. To qualify for the EITC, taxpayers must have earned income from employment or self-employment and meet certain other requirements. If the veteran has qualifying children, the amount of the EITC can be higher. Qualifying children must meet specific criteria, including relationship, age, residency, and dependency.
Review State-Specific Benefits for Veterans
Many U.S. states offer various tax breaks and exemptions for veterans. Here are a few examples of tax breaks for veterans that some states have historically offered:
Property Tax Exemptions: Some states provide property tax exemptions for disabled veterans, often based on the severity of their disability. This exemption may apply to the veteran’s primary residence.
Income Tax Exemptions: Certain states exclude military retirement pay from state income tax. This can be particularly beneficial for veterans who receive retirement income from their military service.
Educational Benefits: Some states offer veterans in-state tuition rates at public universities, regardless of residency status, or provide other educational benefits.
Business Ownership Incentives: Certain states have programs to support veteran-owned businesses, including tax incentives and procurement preferences.
Tax Help for Veterans
As veterans embark on their post-military journeys, navigating the tax landscape becomes a key aspect of financial management. By understanding the nuances of military-related income, exploring veteran-specific credits, and leveraging available deductions, veterans can optimize their tax situations. Whether pursuing education, homeownership, or starting a business, staying informed about tax tips for veterans and seeking professional guidance are essential steps toward financial success in the civilian world. Optima Tax Relief is the nation’s leading tax resolution firm with over $1 billion in resolved tax liabilities.
Today, Optima Tax Relief’s Lead Tax Attorney, Phil Hwang, discusses gift taxes, including how they work and who is responsible for paying them.
The government imposes gift taxes on the transfer of property, money, or assets from one person to another without receiving something of equal value in return. These taxes are typically levied to prevent individuals from avoiding estate taxes by giving away their assets before they pass away.
The person responsible for paying gift taxes is generally the person making the gift (the donor), not the person receiving the gift (the donee). In 2023, you can give up to $17,000 each year to as many people as you want without incurring gift tax. Gifts within this annual exclusion amount do not require you to report or pay gift tax.
In addition, the lifetime gift tax exemption allows you to make larger gifts without paying gift tax. However, once you exceed this exemption, you’ll be required to pay gift taxes on the excess amount. As of 2023, the lifetime gift tax exemption is about $13 million per person.
Once you reach either of these thresholds, a giver will be responsible for paying gift taxes. This tax can range from 18% to 40% depending on the taxable amount. In addition, if you give over the current $17,000 limit, you will need to file a gift tax return. This r formally known as the United States Gift (and Generation-Skipping Transfer) Tax Return.
Given these thresholds, it can be fairly simple to avoid the gift tax. However, certain actions can trigger the gift tax. These include unpaid loans to friends and family or excess contributions to a 529 savings plan. Be sure to speak with a knowledgeable tax professional if you’re unsure about how to properly gift your assets.
Receiving an IRS notice in the mail can be scary, but the situation can be less daunting if you know what to do. First, it’s important to note that not all IRS notices are negative as some are only informational. In any case, taxpayers should know what steps to take upon receiving an IRS notice.
Do Review Your IRS Notice
The IRS will send notices for many reasons, from notifying you of a balance dueto informing you of a delay in processing your return. From inquiring whether your return is missing a schedule or form required for processing to informing you of a potential audit. Carefully review your notice for important information. If you’re unsure of what the notice means, you can look up the CP or LTR number, located on the top or bottom right-hand corner of the notice.
It also shows the date and time the IRS expects you to respond. In the best case scenario, the IRS is pursuing a correspondence audit covering one or two items of a single year’s tax return. Correspondence audits are conducted entirely by mail and makeup 75 to 80 percent of all audits. An in-person interview audit takes place at your local IRS office. A field audit is scheduled for a particular date and time but takes place in your home or office. It is considered the most comprehensive type of audit.
Do Not Panic
Understand what auditors are seeking. While each audit is different, all audits focus on three basic questions:
Is your business truly a business – or just a hobby?
If you can answer these three questions to the satisfaction of the auditor, you stand a good chance of emerging from an audit relatively unscathed.
Do Gather Your Documentation
Once you have determined what information the IRS is seeking, it’s time to begin gathering your paperwork. If the IRS is challenging a particular deduction or tax credit that you claimed, gather whatever documentation you have to support your claim. This can include bank statements, receipts, and invoices. Provide as much information as possible concerning the inquiries the IRS has made. Also, make photocopies of everything that you intend to provide to the IRS. Never give up your original documents. If you must report in person for an office audit or prepare your home or office for a field audit, ensure that your paperwork – and your representative – will be available and ready.
Do Respondto the IRS Noticein a Timely Manner
If the information on the notice looks inaccurate, you should respond with a written dispute. Doing so in a timely manner can help minimize interest and penalty fees. Be sure to include any information and supplemental documentation to support your case. However, do not volunteer information the IRS has not specifically requested. Typically, the IRS should respond to disputes within 30 days.
Do Check for Scams
Remember that the IRS will never contact you via text message or social media. In fact, initial contact from the IRS is usually via mail. If the IRS notice does not appear credible, you can always check your online tax account on the IRS website to confirm balances due, communication preferences, and more.
The IRS will notify a taxpayer if they believe that there may be fraudulent activityoccurring on their tax return. The IRS will send a letter to you inquiring about a suspicious tax return that you may have not filed. They will request that you do not e-file your return because of the duplicate social security number that was used. Act quickly should you receive this letter from the IRS to avoid further fraudulent activity with your personal information.
Do Not Ignore the IRS Notice
Some IRS notices are purely informational and require no additional action. However, do not assume this is always the case and ignore the notice. Simple mistakes made on your return or underreporting income can result in the IRS requesting action from you. A notice can also be a notification that you owe taxes and will give instructions on how to pay the balance by the due date.
Do Not Replyto the IRS NoticeUnless Instructed To Do So
Typically, a response to an IRS notice is not needed. Once you confirm a response is not required, you can proceed with other actions. Even if the notice informs you of a balance due, there is no need to contact the IRS unless you do not agree with the information on the notice.
Do Learn from the Experience
Use the situation as an opportunity to learn more about tax regulations and ensure that your future tax filings are accurate and complete. Consider consulting with a tax professional for ongoing guidance.
Tax Help for Those Who Received an IRS Notice
Even if you prepare your own returns, having a professional from Optima Tax Relief check out your response before you return it to the IRS may save you from making a costly error. The IRS allows you to be accompanied by a representative if you have been contacted for an in-person interview audit or a field audit. Take advantage of this opportunity. You’ll likely be nervous during the procedure and may share information that might prompt the IRS agent to probe beyond the original scope of inquiry. Not only that, most IRS agents prefer dealing with a professional.
The best thing to do to avoid receiving warnings from the IRS is to always ensure that you remain compliant with tax law. However, if you find yourself in a situation where you owe the IRS, tax relief is always an option. Optima Tax Relief is the nation’s leading tax resolution firm with over $1 billion in resolved tax liabilities.
