IRS Inconsistencies for 2024 Are Not So Bad

Categories : Financial, News
November 15, 2023

Our Government has long been inconsistent in applying Cost of Living Adjustments (COLAs) for taxpayers. We have been disappointed when inflation adjustments are applied unequally among aspects of our individual financial lives. In practice, every year brings more inconsistencies, and American Taxpayers seem always to wind up on the losing side of the battle to maintain our lifestyles.

According to the Bureau of Labor Standards (BLS), the annual rate of inflation for the U.S. Government’s Fiscal Year 2023 (ended 9/30/2023) was 3.7%. Most Americans believe inflation was much higher than that, but individuals have no say in the process.

Summarizing various inconsistent applications of COLAs for 2024, we were amazed to surmise that Americans are actually receiving a reasonable package of changes, starting January 1, 2024. We cannot remember the last time this happened, and we are not reluctant to share good news.

Even in a good deal, not all aspects are beneficial to every affected American. Social Security Benefit increases and maximum contributions to company-sponsored Retirement Accounts did not keep pace with inflation. Individual savers, however, will receive an above-inflation boost in allowable Contribution Limits to Individual Retirement Accounts, or IRAs.

Other good news can be found in the indexing of Individual Income Tax Brackets, which were expanded (in size, not tax rate), by about 5.4%. Due to the progressive nature of our tax system, taxpayers at every level will preserve more of their income in the two lowest brackets, 12% and 22%. Families with taxable income below $94,300 will also collect any Long-Term Capital Gains tax-free. (Note that taxable income includes Capital Gains.)

The Standard Deduction will also be indexed by 5.4%, and will provide additional relief in excess of the stated change in CPI.

The U.S. Tax Code is getting slightly more user-friendly in 2024; but unless something is changed in Washington, D.C., our current tax brackets will soon return to the pre-2018 level. The Trump tax cuts are set to expire at the end of 2025, costing every taxpayer significantly more tax dollars, beginning on January 1, 2026. Preventing this should be a top priority for every elected representative, but we seldom hear the topic discussed.

Also being largely ignored are looming insolvencies in Social Security and Medicare, as well as the unsustainable National Debt. These problems need to be addressed, and will likely involve tax increases down the road. For now, we’ll take the relatively good news and plan accordingly.

Van Wie Financial is fee-only. For a reason.