Prepare for the upcoming tax season by reviewing 2024 inflation adjustments, important deadlines, and opportunities to minimize your tax bill.
They say hindsight is 20/20, but tax planning shouldn’t simply be based on what has worked in the past. Upcoming life changes and external factors such as tax policy developments deserve attention and may offer money-saving opportunities. With that in mind, here are several of the most important tax-planning considerations and deadlines to remember as we move into 2024.
Key Dates and Deadlines
April 15, 2024 – Taxes are due (unless extended due to a local state holiday).
- First-quarter estimated tax payment is due using Form 1040-ES.
- Deadline for making IRA and HSA contributions that can count toward 2023.
- Deadline to file for an extension using Form 4868.
June 15, 2024 – Second-quarter estimated tax payment is due using Form 1040-ES.
Sept. 15, 2024 – Third-quarter estimated tax payment is due using Form 1040-ES.
Oct. 15, 2024 – Last day to file your extended tax return.
Dec. 31, 2024 – Deadline to timely take RMDs.
Jan. 15, 2025 – Fourth-quarter estimated tax payment is due using Form 1040-ES.
IRS Inflation Adjustments
The IRS makes inflation adjustments annually, and the increases have two purposes:
- To prevent tax bracket creep for those whose income keeps pace with inflation.
- To limit government revenue increases resulting from inflation.
Since the 1980s, the adjustment amounts have stayed within relatively predictable ranges. However, as inflation soared between 2021 and 2022, the 2023 adjustments represented the sharpest increase in nearly four decades. Even so, many families still had less inflation-adjusted net income going into 2023. Fortunately, inflationary pressures are easing. For the 12-month period through September 2023, inflation increased 3.7%, reflecting a significant decline from 7.8% during the previous period. However, when it comes to inflation and taxes, many planning strategies remain unchanged as we head into 2024.
2024 Tax Planning Considerations
Standard Deduction
In 2017, the Tax Cuts and Jobs Act significantly increased the standard deduction amounts, making it unnecessary for many taxpayers to itemize. If this is the case for you, strategically managing adjustable below-the-line deductions (charitable contributions, payments of state and local taxes, medical expenses, etc.) to maximize itemization may be optional. It also highlights the importance of effectively managing above-the-line deductions, which can be taken regardless of whether someone uses the standard deduction or itemizes. These include deductions for items such as traditional IRA or HSA contributions, student loan interest, and self-employed retirement contributions, among others.
Tax Brackets
It’s important to review whether the new tax brackets will give you enough room to remain in the bracket you were in for 2023 or whether adjustments should be made. By reviewing this early in the year, you can determine whether additional tax-reduction strategies could further reduce income so that you remain in the same bracket.
Long-Term Capital Gains Brackets
Long-term capital gains on investments receive advantageous tax treatment that you may benefit from. Proper planning can reveal opportunities and help prevent the following undesirable consequences:
- Unless necessary (e.g., to properly diversify your portfolio, etc.), hold appreciated investment assets for at least a year before selling. Doing so earlier will result in them being taxed at ordinary income rates, which are higher than capital gains rates.
- Consider whether you may be subject to an additional net investment income tax (NIIT) of 3.8%. This tax impacts investment income for single filers with modified adjusted income (MAGI) exceeding $200,000, and joint filers with MAGI exceeding $250,000. If this is a possibility for you, we can help review the consequences in more depth.
- Account for asset location in your overall investment asset tax planning. If you have investment accounts with different types of tax treatment (e.g., taxable, tax-deferred, and tax-free), strategically placing certain investments in certain accounts can help you significantly reduce the long-term impact of taxes on your portfolio.
Tax-Advantaged Accounts
Maximizing available tax-advantaged options, such as retirement accounts and HSA plans, is important. As mentioned, contributions to many of these accounts are eligible for an above-the-line deduction that taxpayers can take whether they itemize. Not only do they help save on tax payments today, but they also provide ongoing tax benefits in the form of tax deferral. Planning early can allow you to spread those contributions out over the year instead of potentially last-minute large sums to help reduce taxes.
It is also advantageous to take a long-term view of tax deferral. It can be tempting to defer as much as possible to lower taxes today. However, doing so could have adverse effects on tax payments in the future. The tax consequences for when the money is distributed should be considered. The decision to pay more taxes today comes in the form of making non-deductible Roth IRA contributions (for those who qualify), or by converting tax-deferred accounts into a Roth IRA to allow for tax-free growth.
Other Inflation Adjustments
This article only outlines some of the key items that were adjusted for inflation. Depending on your situation, you may explore others, such as the foreign earned income exclusion, gift tax exclusion, or qualified adoption expenses. To ensure you take full advantage of the opportunities available, speak with us to discuss which inflation adjustments would be most relevant to your circumstances as you begin tax planning for 2024.
