Tax Provision and Deduction Changes for 2024

Tax provisions and deductions are integral to financial planning, shaping both individual and business fiscal responsibilities. As we approach 2024, understanding changes in tax regulations is essential for taxpayers aiming to optimize returns and minimize liabilities. The upcoming adjustments will affect various aspects of taxation, including income rates and deductions.

This article examines the significant modifications expected this year, offering insights into how these changes may affect different taxpayer categories.

Individual Income Tax Rate Changes

In 2024, individual income tax rates are set for adjustments that could impact taxpayers across various income brackets. The Internal Revenue Service (IRS) reviews these rates annually to account for inflation and economic conditions. Tax brackets are expected to undergo inflation adjustments, which could alter the thresholds for each bracket and affect the amount of tax owed.

The current tax structure, established under the Tax Cuts and Jobs Act (TCJA) of 2017, introduced seven tax brackets ranging from 10% to 37%. These brackets are adjusted yearly using the Chained Consumer Price Index (C-CPI) to prevent “bracket creep,” where inflation pushes taxpayers into higher brackets without an increase in real income. If inflation rises, higher thresholds may allow individuals to retain more income before reaching a higher bracket.

Legislative proposals could also influence tax rates. Discussions about increasing the top marginal tax rate for high-income earners suggest potential changes above the current 37%. Such adjustments would primarily affect high earners, requiring revisions to tax planning strategies, including withholding and estimated payments.

Standard Deduction Adjustments

The standard deduction reduces taxable income without requiring taxpayers to itemize deductions. For 2024, adjustments to the standard deduction are expected to reflect inflation, preserving its value and ensuring taxpayers are not disadvantaged by rising costs.

In 2023, the standard deduction was $13,850 for single filers and $27,700 for married couples filing jointly. Anticipated increases based on the Chained Consumer Price Index (C-CPI) could shield more income from taxation. This change simplifies filing for those who do not itemize and reduces tax burdens, particularly for middle and lower-income households.

An increased standard deduction could also influence financial decisions, such as charitable contributions, as fewer taxpayers may benefit from itemizing. For many, the higher deduction may outweigh the benefits of tracking and justifying individual expenses.

Child Tax Credit Modifications

The Child Tax Credit (CTC) provides financial relief to families with dependent children. In 2024, potential changes to the CTC could reshape its impact on family finances, with discussions in Congress focused on increasing support for families and addressing child poverty.

Recent proposals suggest raising the credit amount per child and adjusting income phase-out thresholds. Potential increases include raising the credit to $3,600 per child under six and $3,000 for children aged six to 17. These changes could offer substantial financial relief for eligible families, especially those in lower and middle-income brackets.

Policymakers are also considering making the CTC fully refundable, allowing families with little or no tax liability to benefit fully. Reinstating advance payments, as implemented in 2021, is another possibility, providing families with monthly financial support.

State and Local Tax Deduction Limits

The state and local tax (SALT) deduction has been a contentious issue since the Tax Cuts and Jobs Act (TCJA) of 2017 capped it at $10,000. This cap disproportionately affects residents of high-tax states such as New York, California, and New Jersey, who face higher effective tax rates due to limited deductibility.

Proposals to modify the SALT cap range from raising the limit to repealing it entirely. For example, increasing the cap to $20,000 could provide relief to middle-income homeowners in high-tax regions. Advocates argue that lifting the cap would promote fairness and economic competitiveness.

Mortgage Interest Deduction Revisions

The mortgage interest deduction allows taxpayers to reduce taxable income by the interest paid on their mortgage, making homeownership more affordable. Under the Tax Cuts and Jobs Act (TCJA), the deduction is limited to interest on mortgages up to $750,000 for loans taken after December 15, 2017, with a $1 million cap for older mortgages.

As housing markets fluctuate, some policymakers advocate for raising these limits to reflect rising home prices, particularly in urban areas where costs have outpaced income growth. Adjusting the cap could make homeownership more accessible for middle-income families and foster economic stability in high-cost regions.

Higher interest rates also increase the amount of interest paid, potentially resulting in larger deductions within the current limits. Understanding these dynamics is essential for homeowners navigating refinancing, home equity loans, and broader financial planning.