- Wednesday, October 16, 2024
The standard deduction is a significant tool that allows many Americans to lower their taxable income each year. In 2024, this deduction will see another increase, albeit smaller than the one seen in 2023.
According to figures released by the IRS, the standard deduction will be raised by over 5% for the 2024 income tax returns, which will be filed in 2025. This adjustment is part of the annual changes made by the IRS to account for inflation, as announced recently. In addition to the standard deduction, the income ranges on tax brackets have also been adjusted to keep up with inflation.
In 2023, the standard deduction, tax brackets, and other indexed tax provisions saw an approximate increase of 7% for income tax returns. This adjustment was the largest seen in decades, according to Robert McClelland, a senior fellow at the Tax Policy Center.
For individuals, the standard deduction will climb to $14,600 in 2024, representing a 5.4% increase from its previous amount of $13,850. Similarly, for married couples filing jointly, the deduction increases to $29,200 from $27,700, also experiencing a 5.4% year-over-year increase. Individuals filing as "head of household" will see their deduction climb to $21,900, up from $20,800, which translates to a nearly 5.3% increase.
The amount of the standard deduction is crucial for many taxpayers as it directly impacts their federal tax liability. According to IRS statistics, approximately 90% of the 142.5 million tax returns received through mid-July utilized the standard deduction rather than itemizing deductions, as it is a more straightforward process.
In conclusion, while the upcoming increase in the standard deduction will be smaller compared to the previous year's adjustment, it remains a valuable tool for reducing tax liability for the majority of taxpayers.
The Future of Itemized Deductions vs Standard Deduction
Taxpayers have the option to itemize a range of expenses including mortgage interest, state and local taxes up to $10,000, medical expenses, and charitable contributions. However, the decision between claiming the standard deduction or itemizing comes down to one key question: which option provides a larger deduction?
The year 2025 will mark a significant milestone for taxpayers. It will be the final year for many of the rules that were implemented under the Tax Cuts and Jobs Act of 2017, which brought about substantial changes to the tax code. One notable change was the nearly doubled amount of the standard deduction. Unless there are new legislations enacted by Congress, the standard deduction will revert back to a smaller amount.
With a multitude of rules set to expire and political gridlock on Capitol Hill, the future of tax laws remains uncertain. However, experts believe that reaching an agreement on the standard deduction could be a possibility once the 2017 tax law expires.
Unfortunately, finding common ground among lawmakers is proving to be challenging. In an effort to increase the standard deduction amount for income tax returns in 2024 and 2025, Representative Jason Smith, a Republican from Missouri and chair of the House Ways and Means Committee, introduced a bill. However, skeptics predict that this bill has slim chances of passing. Nonetheless, its introduction serves as a message that officials are actively considering the future of the standard deduction in ongoing tax code debates.
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