As we transition into 2024, many clients have had questions about how to stay ahead of the curve regarding tax law changes and adjustments. What follows is a list of “Top 10” areas in your financial life that tax law changes could impact.

Given the potential flux in tax laws and the possibility of rollback of the federal estate, gift, and generation-skipping transfer taxes, now is an opportune time to take advantage of the all-time high exemptions in these taxes.

Top 10 Things to Think About in 2024

1. Key Tax Amounts Changes in 2024
   • Key adjustments have been made to tax brackets and rates in 2024 due to inflation in the 2023 fiscal year. Despite the tax rates remaining the same, the income tax brackets for individuals are wider, as are the income thresholds for various long-term capital gain rates and qualified dividends. The Alternative Minimum Tax (AMT) exemptions also rose for 2024, increasing to $133,300 for couples and $85,700 for singles and household heads.
2. Tax Credit and Deduction Adjustments
   • The standard deduction amounts for 2024 have been inflation-adjusted and are higher than in the previous year.  Also, qualified electric vehicle (EV) buyers can monetize up to the $7,500 federal EV tax credit.  Finally, there are updates to the adoption tax credit as well. It can be claimed for up to $16,810 of qualified expenses in 2024, with full credit available for special needs adoption, irrespective of the cost. This credit starts phasing out for those with an AGI over $252,150 and ceases to apply at $292,150.
3. Retirement Plan Changes
   • This year, significant alterations include penalty-free early withdrawals from IRAs and 401(k)s for people under 59½. Specifically, domestic abuse victims can withdraw up to $10,000, and $1,000 can be accessed for emergencies without the added 10% tax, although regular income tax will still apply. Roth 401(k) owners are now exempted from mandatory minimum distributions, mirroring the regulation for Roth IRA owners. Key dollar limits on workplace retirement plans and IRAs increase, and the income ceilings on Roth IRA pay-ins are higher for 2024.
4. Gift and Estate Tax Exclusion Alterations
   • For 2024, the lifetime estate and gift tax exemption has been set at $13,610,000. This means an individual can transfer up to this amount over their lifetime without incurring federal gift or estate tax. For 2024, couples can combine their exemptions for a total of $27,220,000. The annual gift tax exclusion has also increased to $18,000 per recipient, or $36,000 if gifts are split between spouses. This allows a person to gift up to this amount without reducing the lifetime estate and gift tax exemption.
5. Charitable Giving Considerations
   • The Tax Cuts and Jobs Act (TCJA) increased the standard federal deduction, making it more difficult for charitable contributions to qualify as itemized deductions. Seniors aged 70½ and older can direct charitable gifts tax-free from their IRA. Given that most retirees opt for the standard deduction, these charitable gifts wouldn’t provide a tax benefit unless they opt to itemize deductions. However, these individuals can transfer up to $105,000 tax-free from their IRA to a recognized charity.
6. Business Tax Modifications
   • In 2024, there are significant changes to the taxation of businesses, ranging from introducing cash method accounting for C corps, clean-energy credits, an increase in standard mileage rate for business driving, changes to first-year bonus depreciation, Section 179 expensing limits, and deduction limits for pass-through income. Finally, 2024 is the year the Federal Corporate Transparency Act takes effect, requiring all “Beneficial Ownership” information to be reported to the U.S. Treasury’s Financial Crimes Enforcement Network.
7. Secure 2.0 Act Implications
   • The SECURE 2.0 Act is a transformative piece of legislation, fundamentally shifting the landscape of retirement account rules, with over 90 provisions covering all types of retirement savings plans. The changes within the act encompass a wide variety of areas, including RMD Age Rules and Penalties, Higher 401(k) Catch-up Contributions, Automatic Enrollment Changes, Emergency Withdrawal Flexibility, 529 Plan Roth Rollovers, and a Student Loan Payment 401(k) Match. The Act also includes a significant new rule that requires most companies to automatically enroll eligible employees in the company’s retirement plan, which takes effect in 2025. It mandates that employers establishing a new 401(k) or 403(b) plan must automatically enroll eligible employees, with a minimum contribution rate of 3%.
8. Changes to 529 plans regarding Roth IRAs
   • Starting in 2024, designated beneficiaries of 529 plans can make rollover contributions from their plans to a Roth IRA if they have excess funds without incurring any taxes or penalties. However, this rollover cannot exceed the annual Roth IRA contribution limit of $6,500, or the lifetime rollover limit of $35,000. These rollovers can add flexibility to gifting strategies and enable beneficiaries to use their tax-advantaged funds for retirement savings or substantial purchases such as a house.
9. Impact on Income Tax from pending 2026 Sunset
   • The Tax Cuts and Jobs Act (TCJA) of 2017 is scheduled to cease or “sunset” at the close of 2025. This act substantially lowered marginal rates for most individual tax brackets. In addition, the standard deduction was nearly doubled, personal exemptions were eradicated, the child tax credit was made twice as large, and a $10,000 cap was set on state and local tax deductions. The Act also imposed stricter regulations on mortgage and home equity interest deductions. However, these changes are not enduring and will expire with the TCJA at the end of 2025, reverting to 2017 levels.
10. Impact on Estate Tax from pending 2026 Sunset
    • The gift and estate tax exemption amounts were doubled as part of the 2017 Tax Cuts and Jobs Act. Still, this doubling expires after 2025, and the exemptions will effectively be halved unless further congressional action is taken. Given this impending change, individuals and couples, especially those with net worths exceeding the exemption amounts, would be wise to start planning now to take advantage of the current exemptions.

Closing Thoughts

The financial landscape is changing rapidly due to adjustments in tax and estate planning regulations. It’s crucial to stay informed and proactive.  Moreover, with the 2026 sunset of the Tax Cuts and Jobs Act looming, it is imperative for individuals and couples, especially those with a substantial net worth, to initiate planning now to fully leverage the current exemptions before they potentially halve in 2026.

Now is the time for a detailed conversation with your financial advisor to address your questions and concerns and ensure your financial strategy is primed for future transformations.