5 minute readNew Limits for Interest, Gifts, Taxes, and IRAs
I hope everyone is having a wonderful holiday season.
I thought it was appropriate to see what the IRS has placed in our stocking for 2024.
Of course, it all depends on if we have been naughty or nice. . .
Naughty List - Interest Charged (1)
Failure to File a Tax Return
No goodies are in your stocking for failing to file a tax return. The late filing penalty is 5% of your unpaid taxes for each month your return is late, up to a maximum of 25%. In addition, in 2024, you will be charged a minimum late-filing fee of $510 or 100% of taxes owed, whichever is lower if your tax return is not filed within 600 days of the due date.
Failure to Pay Your Taxes
Failure to pay your taxes when they are due will cost you a penalty based on the time overdue taxes remain outstanding. This number will not exceed 25% of your unpaid taxes. Failing to pay the amount shown as tax on your tax return will cost you 0.5% of the unpaid taxes for each month or part of the month the tax remains unpaid.
Accuracy-Related Penalty
Not reporting all your income or claiming deductions or credits you do not qualify for is a serious matter. You will be penalized 20% of the underpayment of the impacted tax if you understate your tax liability by 10% of the tax required on your tax return, or by $5,000, whichever is greater.
Erroneous Claim for Refund or Credit Penalty
Submitting unwarranted claims incurs a 20% penalty.
Increased Interest on Underpaid Taxes
The IRS increased the interest you pay on underpaid taxes. These are taxes owed but not fully paid. For the first quarter of 2024, this rate will be 8%. This rate is typically a federal short-term interest rate and is adjusted quarterly.
Nice List - IRS Pays You (2)
Interest on Overpayments
The IRS rewards overpayments at 8% for individuals and 7% for corporations, reaching 10% for substantial corporate overpayments.
Nice List - Tax Inflation Adjustments for 2024 (3)
The Standard Deduction
There are increases for various filing statuses: $29,200 for married couples filing jointly, $14,600 for singles, and $21,900 for heads of households.
Marginal Tax Rates
Top tax rates remain steady at 37% for higher-income individuals.
The other rates are:
35% for incomes over $243,725 ($487,450 for married couples filing jointly)
32% for incomes over $191,950 ($383,900 for married couples filing jointly)
24% for incomes over $100,525 ($201,050 for married couples filing jointly)
22% for incomes over $47,150 ($94,300 for married couples filing jointly)
12% for incomes over $11,600 ($23,200 for married couples filing jointly)
The lowest rate is 10% for incomes of single individuals with incomes of $11,600 or less ($23,200 for married couples filing jointly).
Maximum Earned Income Tax Credit
This tax credit will rise to $7,830 for qualifying taxpayers with three or more qualifying children.
Flexible Spending and Cafeteria Plans
Employee salary reduction limit for health flexible spending arrangements climbs to $3,200, with a $640 maximum carryover for cafeteria plans.
Nice List - Changes in Gift Exclusions
Annual and Estate Exclusions
Gift and estate exclusions surge for 2024, offering higher limits of $18,000 and $13,610,000, respectively.
Nice List - Changes in Retirement Plans (4)
401(K), 403(b) Plans & IRA Contributions
Contribution limits increase to $23,000 for 401(k) and similar plans, and $7,000 for IRAs.
Naughty List
Catch-Up Provisions
The IRS also made the naughty list here for not increasing the ‘catch-up’ contribution limit for those aged fifty and over who participate in 401(k), 403(b), and most 457 plans, as well as the federal government's Thrift Savings Plan, which remains $7,500 for 2024.
This means you can contribute up to $30,500, starting in 2024, if you are fifty or older. The catch-up contribution limit for employees fifty and over participating in SIMPLE plans remains $3,500 for 2024.
Neither Naughty Nor Nice
Income Eligibility for Deductible IRAs and to Participate in Roth IRAs The income ranges for determining eligibility for deductible contributions to traditional IRAs increased for 2024.
Here are the phase-out ranges for 2024:
· For single taxpayers covered by a workplace retirement plan, the phase-out range increased to $77,000 and $87,000, up from between $73,000 and $83,000.
· For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range increased to $123,000 and $143,000, up from between $116,000 and $136,000.
· For an IRA contributor who is not covered by a workplace retirement plan and is married to someone covered, the phase-out range is increased to $230,000 and $240,000, up from between $218,000 and $228,000.
· For a married individual filing a separate return covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.
Neither Naughty Nor Nice
Income Eligibility for Roth IRAs
The income phase-out range for taxpayers making contributions to a Roth IRA increased to $146,000 and $161,000 for singles and heads of household, up from between $138,000 and $153,000.
For married couples filing jointly, the income phase-out range increased to $230,000 and $240,000, up from between $218,000 and $228,000. The phase-out range for a married individual filing a separate return who contributes to a Roth IRA is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.
Rounding out the Nice List
Qualified Charitable Distributions
Limitations rise to $105,000 for 2024, offering more charitable donation potential.
One-time IRA Transfer
This increased to $53,000, encouraging charitable remainder trust or annuity arrangements.
And a Very Nice list
Contact us!
For a detailed chart outlining these changes, contact our Business Development Desk at 858 964 – 0500.
Happy New Year!
Sources
(1) IRS Updates Penalties for Late Tax Returns in 2024: What You Should Know, by Nasdaq, December 12, 2023, https://www.nasdaq.com/articles/irs-updates-penalties-for-late-tax-returns-in-2024:-what-you-should-know
(2) Quarterly Interest Rates, by the IRS, n/d, https://www.irs.gov/payments/quarterly-interest-rates
(3) IRS provides tax inflation adjustments for tax year 2024, by the IRS, November 9, 2023, https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2024#:~:text=The%20annual%20exclusion%20for%20gifts,increased%20from%20%2415%2C950%20for%202023.
(4) 401(k) limit increases to $23,000 for 2024, IRA limit rises to $7,000, by the IRS, November 1, 2023, https://www.irs.gov/newsroom/401k-limit-increases-to-23000-for-2024-ira-limit-rises-to-7000
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