IRS Inflation Adjustments

The Internal Revenue Service makes changes in tax law due to inflation and changes to the cost of living. The US has seen a considerably high inflation rate for over decades, which will have a particular impact on the tax code.

Some of the yearly changes include standard deduction improvements and new tax brackets. These happen for every tax season, but there are other changes that taxpayers do not anticipate as always. The greatest example of this for the 2024 tax season is the child tax credit and the electric vehicle tax credit. 

Improvements to tax credits 

Although taxpayers were aware of the changes to the child tax credit early on due to the advanced payments, the EV tax credit improvements were unexpected. For the 2024 tax year, the child tax credit has been adjusted by almost doubling it. 

With the new changes, taxpayers can claim a tax credit for the purchase of an electric vehicle for up to $12,500. With the increased child tax credit being effective for one last year, it’s the perfect opportunity to equip yourself with a family electric vehicle.

Deductions and tax rates

Many of the deductions remain the same for the 2024 tax season as well, but there has been a significant improvement to the state and local taxes deduction, also known as SALT deduction. What was an unlimited tax deduction once had a $10,000 with the Tax Cuts and Jobs Act of 2017, but it has now changed. This limit is now pushed further to $80,000 for all taxpayers except for those who are married but filing a separate return. 

As for standard deduction, it hasn’t been announced by the Internal Revenue Service yet. However, we expect it to be close to $13,000 this time as inflation has skyrocketed compared to previous years. 

While the tax hike was in the talks for a long time, it didn’t happen. The marginal tax rates remain the same at 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent, and 37 percent. But, it’s still worth checking the amounts on the tax brackets to see where you’re placed on the ladder.

Additional changes

These aren’t it for the tax season. There are plenty of minor changes that may affect you. Make sure to look at the deductions and credits you anticipate to claim to see if there have been any changes.

The best way to see if the changes affect your federal income tax return is to take advantage of the tax preparation services. It’s a lot easier to let the software handle the majority of your taxes rather than going through a bunch of tax forms to figure out what to enter.