By Lisa M. Borrelli, Senior Wealth Specialist, Bryn Mawr Capital Management, a subsidiary of WSFS Financial Corporation
Thinking back to 2022, it was difficult to consume financial media without seeing market volatility and inflation. Throughout 2023, rising interest rates and cooling inflation[1] have dominated the headlines. A benefit for taxpayers looking at 2023 year-end and 2024 preliminary tax planning is the increase to individual tax brackets exceeds current inflation.
Tax Brackets
On November 9, 2023, the IRS released the 2024 tax brackets,[2] which are structured to be tied to inflation. Below, we cover the adjustments to the income thresholds for each tax bracket and the standard deduction that has been adjusted.
Inflation and Ordinary Tax Brackets
As of October 2023, inflation for the previous 12 months was calculated at 3.2%[3]. When the IRS announced the 2024 Tax Brackets, the result was an average of a 5.4% increase from the 2023 values. To some, this may sound like a big shift, while it is immaterial to others. Looking at how much each taxpayer’s income is anticipated to increase in 2024 compared to 2023, as well as where one is in their tax bracket, is likely to influence interpretation. The chart below shows the impact of a 5.4% inflation increase for single and married filing jointly (MFJ) taxpayers. It is fair to point out, that it may be difficult to see a change for those below the 24% tax bracket; the greatest potential impact is for taxpayers in the upper 35% to lower 37% brackets.
(Chart 1)[4]
(in thousands)
| 2023 Single | 2024 Single | 2023 MFJ | 2024 MFJ | |
| 10% | $0 – $11,000 | $0 – $11,600 | $0 – $22,000 | $0 – $23,200 |
| 12% | $11,001 – $44,725 | $11,601 – $47,150 | $22,001 – $89,450 | $23,201 – $94,300 |
| 22% | $44,726 – $95,375 | $47,151 – $100,525 | $89,451 – $190,750 | $94,301 – $201,050 |
| 24% | $95,376 – $182,100 | 100,526 – $191,950 | $190,751 – $364,200 | $201,051 – $383,900 |
| 32% | $182,101 – $231,250 | $191,951 – $243,725 | $364,201 – $462,500 | $383,901 – $487,450 |
| 35% | $231,251 – $578,125 | $243,726 – $609,350 | $462,501 – $693,750 | $487,451 – $731,200 |
| 37% | $578,126+ | $609,351+ | $693,751+ | $731,201+ |
| 2023 Head of Household (HoH) | 2024 Head of Household (HoH) | 2023 Married Filing Separately (MFS) | 2024 Married Filing Separately (MFS) | |
| 10% | $0 – $15,700 | $0 – $16,550 | $0 – $11,000 | $0 – $11,600 |
| 12% | $15,701 – $59,850 | $16,551 – $63,100 | $11,001 – $44,725 | $11,601 – $47,150 |
| 22% | $59,851 – $95,350 | $63,101 – $100,500 | $44,726 – $95,375 | $47,151 – $100,525 |
| 24% | $95,351 – $182,100 | $100,501 – $191,950 | $95,376 – $182,100 | $100,526 – $191,950 |
| 32% | $182,101 – $231,250 | $191,951 – $243,700 | $182,101 – $231,250 | $191,951 – $243,725 |
| 35% | $231,251 – $578,100 | $243,701 – $609,350 | $231,251 – $346,875 | $243,726 – $365,600 |
| 37% | $578,101+ | $609,351+ | $346,876+ | $365,601+ |
Standard Deductions
Taxpayers are entitled to a standard deduction or are able to itemize their deductions[5]. The standard deduction is a reduction to ordinary taxable income, and like tax brackets, increases with inflation. In 2024, the standard deduction is set to increase at a rounded average of 5.4% over the 2023 values.
(Chart 2)
| Filing Status: | Single | MFJ | HoH | |||
| Tax Year: | 2023 | 2024 | 2023 | 2024 | 2023 | 2024 |
| Standard Deduction: | $13,850 | $14,600 | $27,700 | $29,200 | $20,800 | $21,900 |
Capital Gains Tax Rates
Tax tables can feel intentionally complicated because in the U.S., we not only have graduated tax rates, but we also have multiple classifications of income, each with its own set of rules.
The reason to distinguish between ordinary income, referenced above and most identified as income from wages/earned income, and the income derived from investments is there can be special rules for investment income[6]. This secondary tax bracket is the Maximum Capital Gains Rate in the tax code and is often referred to as the capital gains tax bracket. Capital gains tax brackets apply a lower tax rate to income than those previously discussed. The two most common types of investment income that qualify for these lower tax brackets are long-term capital gains (property held for greater than one year) and Qualified Dividend Income[7].
The increase to the 2024 maximum capital gains rate was also rounded to an average of 5.4% over 2023. The chart below illustrates there is a minimum impact for those who have taxable income below $492,000 (Single) or $553,000 (MFJ) or those comfortably in the 15% capital gains tax bracket.
(Chart 3) [8]
| 2023 Single | 2024 Single | 2023 MFJ | 2024 MFJ | 2023 HoH | 2024 HoH | 2023 MFS | 2024 MFS | |
| 0% | $0 – $44,625 | $0 – $47,025 | $0 – $89,250 | $0 – $94,050 | $0 – $59,750 | $0 – $63,000 | $0 – $44,625 | $0 – $47,025 |
| 15% | $44,626 – $492,300 | $47,026 – $518,900 | $89,251 – $553,850 | $94,051 – $583,750 | $59,751 – $523,050 | $63,001 – $551,350 | $44,626 – $276,900 | $47,026 – $291,850 |
| 20% | $492,301+ | $518,901+ | $553,851+ | $583,751+ | $523,051+ | $551,351+ | $276,901+ | $291,851+ |
Estate and Gifts Exemptions
Further exemptions include the federal lifetime gift and estate tax exemption amount will increase to $13.61 million per person. This increased exemption amount means that individuals can transfer up to $13.61 million tax-free during their lives or at death, and married couples can transfer up to $27.22 million. Additionally, the Annual Gift Tax Exclusion increased to $18,000 per person in 2024. This means, that for married couples, the limit is $18,000 each, for a total of $36,000. If you gift more than this sum, you must file a federal gift tax return in 2025.
Monitoring changes to the tax brackets can result in effective tax savings strategies; however, there are many factors to consider in tax planning. Be sure to contact your financial advisor to discuss planning strategies for 2024.
About the Author – Lisa M. Borrelli, CPA
Lisa Borrelli is a Senior Wealth Specialist at Bryn Mawr Capital Management, a subsidiary of WSFS Financial Corporation. In her role, Lisa works with clients on a variety of planning areas such as income tax and liability exposure, business planning, and trust and estate planning. Lisa received her Masters in Taxation (M.T.) from Villanova University and a B.S. in Accounting from Saint Joseph’s University. Lisa can be reached at [email protected].
This communication is provided by Bryn Mawr Capital Management (“BMCM” or the “Firm”) for informational purposes only. Investing involves the risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. No portion of this commentary is to be construed as a solicitation to buy or sell a security or the provision of personalized investment, tax or legal advice. Certain information contained in this report is derived from sources that BMCM believes to be reliable; however, the Firm does not guarantee the accuracy or timeliness of such information and assumes no liability for any resulting damages. Any reference to a market index is included for illustrative purposes only, as it is not possible to directly invest in an index. Indices are unmanaged, hypothetical vehicles that serve as market indicators and do not account for the deduction of management fees or transaction costs generally associated with investment products, which otherwise have the effect of reducing the performance of an actual investment portfolio.
Bryn Mawr Capital Management, LLC is an SEC registered investment adviser that maintains a principal place of business in the Commonwealth of Pennsylvania. The Firm may only transact business in those states in which it is notice filed or qualifies for a corresponding exemption from registration requirements. For information about BMCM’s registration status and business operations, please consult the Firm’s Form ADV disclosure documents, the most recent versions of which are available on the SEC’s Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov. Bryn Mawr Capital Management, LLC, is a wholly owned subsidiary of WSFS Financial Corporation.
[1] https://tradingeconomics.com/united-states/inflation-cpi
[2] Revenue Procedure 23-34
[3] Consumer Price Index for All Urban Consumers – https://www.bls.gov/news.release/cpi.nr0.htm#:~:text=The%20all%20items%20index%20rose,period%20ending%20in%20September%202021.
[4] The charts included in this article were created by Bryn Mawr Capital Management with data outlined in Rev Proc 23-34 and Rev Proc 22-38
[5] A year-end tax planning guide may be found at www.bmt.com/wealth/bryn-mawr-capital-management/overview/news-and-insights/where we take a deeper dive into the difference between Standard and Itemized deductions, for today’s piece, the focus is on the Standard Deduction.
[6] Investment income can be a very far-reaching topic, for this piece, we are focusing on investments in stocks and bonds.
[7] Qualified dividends are income that “qualifies” for the capital gain tax rates and has been earned on domestic investments that are not hedged for options trading and are held for 61 days (common stock, and preferred stock dividends have a holding period requirement of 91 days). (Definition for Qualified Dividends: Federal Tax Coordinator Analysis (RIA) ¶ I-5115.1) There are exemptions for some foreign corporations to issue qualified dividends, See §IRC 245
[8] The charts included in this article were created by Bryn Mawr Capital Management with data outlined in Rev Proc 23-34 and Rev Proc 22-38
