The standard deduction is a major way most Americans reduce their taxable income each year — and with inflation’s burn, the deduction’s amount will jump higher in 2024.
Yet the size of the upcoming increase will be smaller than the size of 2023’s increase, according to IRS figures.
The standard deduction is increasing by more than 5% for 2024 income tax returns, which will be filed in 2025. The change is one of several annual adjustments that the IRS makes for inflation, which the agency announced Thursday. The income ranges on tax brackets also received their yearly facelift as part of a slew of inflation-indexed changes.
See also: Heads up investors: Capital-gains tax rules for 2024 are here
Last year, the standard deduction, tax brackets and other indexed tax provisions increased approximately 7% for 2023 income tax returns. That was the largest one-year adjustment in decades, according to Robert McClelland, senior fellow at the Tax Policy Center.
The standard deduction will climb to $14,600 for individuals in 2024, up from $13,850. That’s a 5.4% increase.
For married couples filing jointly, the amount increases to $29,200, up from $27,700. That’s also a 5.4% year-over-year increase.
For people filing as “head of household,” the amount climbs to $21,900, up from $20,800. That’s a nearly 5.3% increase.
Read also: You can save up to $23,000 in your 401(k) next year, IRS says
The standard deduction’s amount matters to many taxpayers, because it’s the way most people shrink their federal tax liability.
IRS statistics show 90% of the 142.5 million tax returns received through mid-July had used the standard deduction, rather than itemizing deductions, which takes more time and paperwork.
Mortgage interest, state and local taxes up to $10,000, medical expenses and charitable contributions are some of the expenses taxpayers can itemize.
Choosing between the standard deduction and an itemized deduction boils down to the question which route will offer the larger deduction.
People will be claiming the 2024 standard deduction when they file their taxes in early 2025.
That will be a big year for taxes because it’s the final year for many rules that went into effect under the Tax Cuts and Jobs Act of 2017.
The Trump-era tax code overhaul nearly doubled the standard deduction’s amount. Without Congressional action, the standard deduction will fall back to a smaller amount.
Between the thicket of expiring rules and political gridlock on Capitol Hill, it’s an open question what tax laws will look like in the coming years.
But the standard deduction could be a spot for agreement after the 2017 tax law expires, experts have said.
Yet there’s little that seems easy for lawmakers now. In June, Rep. Jason Smith, a Republican from Missouri who chairs the House Ways and Means Committee, introduced a bill to increase the standard deduction’s amount for 2024 and 2025 income tax returns.
Observers said the pending bill had slim odds of passage. But the bill itself was a message that the future of the standard deduction would be on officials’ minds in the debate on the tax code’s future.
Read the full article here
