Imagine getting a pay raise and not even feeling the difference? While a new financial year may come with the promise of inflation adjustments to your wages, if that increase pushes you into a higher tax bracket – your purchasing power could shrink. This phenomenon is known as “bracket creep” – where rising wages lead to higher taxes, offsetting the benefit of a raise.
To counter this, the IRS adjusts tax brackets annually. In 2024, these adjustments are significant across various categories. If you received a large bonus or high income in the 2024 tax year, you may owe less tax on that income compared to previous years. To maximize these benefits, smart tax planning is key. Our CPAs offer some guidance.
Understanding 2024 Inflation-Adjusted Tax Brackets
Do you have fluctuating income? Did you earn extra income this year? Are you nearing retirement? When submitting your taxes this year, you can withdraw funds more beneficially. The top tax rate remains 37% for single filers earning over $609,350 and married couples filing jointly over $731,200.
Here’s how 2024 tax brackets compare with 2023:
| Tax Rate | 2023 Income Range | 2024 Income Range |
| 37% | Over $578,125 | Over $609,350 |
| 35% | $231,251 – $578,125 | $243,726 – $609,350 |
| 32% | $182,101 – $231,250 | $191,951 – $243,725 |
| 24% | $95,376 – $182,100 | $100,526 – $191,950 |
| 22% | $44,726 – $95,375 | $47,151 – $100,525 |
| 12% | $11,001 – $44,725 | $11,601 – $47,150 |
| 10% | Up to $11,000 | Up to $11,600 |
Strategic Tax Planning Using Inflation-Adjusted Brackets
Not sure how to get started? Use the tax saving tips as part of your strategy.
1. Income Bunching
If you received a large bonus, inheritance, or sold a major asset in 2024, you could face a higher tax bill. If you’re close to a tax bracket threshold, however, you can talk to your accountant about strategically accelerating or deferring income and deductions to stay within the lower tax range. Some of the methods you may employ to be able to safely do so:
- Defer a year-end bonus.
- Pre pay medical expenses to boost your deductions in 2024
- Bunch charitable donations in 2024 instead of spreading smaller donations across multiple years for greater tax savings.
2. Tax Harvesting and Capital Gains Management
Selling investments at a loss to offset capital gains can help to reduce your overall tax liability. Remember that long-term capital gains (on assets held for more than a year) are taxed at preferential rates, which may be lower due to the tax bracket adjustments.
3. Tax-Deferred Retirement Accounts
Contributions to traditional 401(k)s and IRAs are tax-deductible, which would lower your adjusted gross income. If you’re nearing retirement, making larger contributions in 2024 could help you take advantage of lower tax rates before future tax law changes.
Key Tax Planning Tips
Keeping accurate records and ensuring that your calculations can be justified is the 101 of tax filing and clean audits. In addition to this there are a number of tax preparation best practices to keep closeby.
1. Review Your Income Sources & Adjust Withholdings
With tax brackets shifting, it’s important to review all sources of income including salary, investment income, and retirement distributions. This will help to ensure you’re withholding the right amount and avoiding unexpected tax liabilities.
2. Maximize Deductions & Credits
Lower tax brackets don’t just mean lower rates, they also enhance the impact of tax deductions and credits. You should still take full advantage of tax-deductible expenses and credits to continue to reduce your bill.
3. Stay Abreast of Tax Law Changes
Assuming your 2024 tax strategy will work every year can lead to inefficiencies. Major life events or legislative changes require a revisited strategy. Keep an eye on capital gains tax changes, shifts in deduction eligibility, tax policy adjustments
4. Work with a Tax Professional
Navigating tax bracket adjustments and optimizing your tax strategy can be complex. That’s where an expert can help. They delve into your financial situation to ensure you stay compliant while minimizing your tax burden.
At Fusion CPA, we help both individuals and businesses develop a personalized tax plan to keep more of your hard-earned money. From managing capital gains to maximizing retirement contributions, our CPAs can help you optimize your 2024 tax strategy. Contact us today!
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This blog article is not intended to be the rendering of legal, accounting, tax advice, or other professional services. We base articles on current or proposed tax rules at the time of writing. Older posts are not updated for tax rule changes. We expressly disclaim all liability regarding actions taken or not taken based on the contents of this blog. The same applies to the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.