Mastering the 2024 Tax Changes: Your Roadmap to Financial Success

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Did you know that 67 percent of Americans are planning on setting financial resolutions for 2024? Data show that 36 percent more Americans are focusing on finance-related resolutions than in past years. Does this surprise you?

Inflation and interest rates have reached new highs, making it harder for the average American to afford basic necessities, like housing and groceries. Understanding the tax changes for 2024 can help you achieve personal financial success, reducing stress surrounding expenses now and in the future.

This article will cover much of what you need to know about the tax changes in 2024, including how you can make smart money moves in the tax era and invest for your future. If you are interested in learning more after reading this article, check out our additional resources section.

Decoding the 2024 Tax Changes

A majority of the 2024 individual tax changes come in the form of inflation adjustments. For one, the tax brackets are adjusted for inflation. If you received a pay raise or another increase in income, you might be pushed into a higher bracket in 2024. This makes it important to update your withholding accordingly.

The standard deduction also saw a small increase. The standard deduction for single taxpayers increases to $14,600, with married filing joint taxpayers able to claim $29,200 and head of household taxpayers receiving a deduction of $21,900. Remember, these increases go into effect for 2024 returns filed in 2025.

The Social Security Administration also announced a 3.2 percent cost-of-living adjustment. If you receive Social Security benefits, expect a 3.2 percent increase on your check starting in January 2024. This adjustment is much lower than the 8.7 percent change in 2022, so plan your budget accordingly.

Like tax brackets and the standard deduction, retirement contribution limits also increase starting in 2024. Employees can contribute up to $23,000 to a 401(k) plan, with a $7,500 additional catch-up for individuals over 50. The contribution limit for individual retirement accounts (IRAs) has been increased from $6,500 to $7,000 for the 2024 year. If you plan on maxing out your contributions, adjust your contributions accordingly.

Your Wallet With the New Tax Laws

These new tax laws impact every American, regardless of which 2024 income tax bracket you fall into. Due to inflation adjustments, it’s important that you revisit your withholdings and planning strategies to maximize your tax savings.

For example, maybe the new standard deduction pushes you into a lower tax bracket. If you don’t change your withholding, you will receive a large refund when your return is filed. Would you rather have that cash in your pocket during the year?

Also, if retirement is a concern, consider upping your contribution percentage. Employer 401(k) plans are pretax deductions. This means the contribution lowers the taxes you pay on your wages. This can be a great way to lower your taxes and save for retirement.

Smart Money Moves in the Tax Era

Achieving financial success in 2024 relies on strong money management skills. To effectively financial plan, you need to know where your money is going. How much are you spending on groceries each month? Are the purchases you’re making necessary or wants? This is where budgeting comes into play.

Beginning in 2024, take the time to track your spending for a month or two. This can help you uncover where changes can happen. Maybe you find that you are overspending on going out to eat. This doesn’t mean you should cut out restaurants altogether, but consider driving to pick up your food instead of paying for DoorDash.

Furthermore, a smart money move you can make in the tax era is to plan for the future. Ideally, you should have six months of funds saved in an emergency account. If you don’t currently have a savings account, this can be a great goal to work toward.

Just like saving is important, managing debt is also important. Budgeting and understanding your debt situation can help you create an action plan to build a better financial foundation. Could you start making your coffee at home and allocate the money you save to your debt? Finding strategies to free up cash flow is critical when it comes to making smart money moves.

Investing for the Tax-Advantaged Future

Once you’ve found ways to manage your debt and control your spending, you might be generating free cash flow. What should you do with this money? This is where investing comes into play, allowing you to build wealth and secure your financial future.

Investing can be scary for most Americans, but it isn’t reserved for the wealthy. You can get started investing with as little as $10. There are countless free investment platforms, like Fidelity and Schwab.

A general trading account where you buy stocks can generate taxable dividends, interest, and capital gain income. However, if you were to put money in a backdoor Roth IRA, any growth within the account is tax-free. A Roth IRA is a retirement account, meaning your funds are tied up until you reach 59½. If you are looking for more flexibility in your funds, consider a general trading account.

Regardless of which account you choose, investment accounts can be a great way to grow your wealth, as the average return is nearly 10 percent each year. This significantly outpaces the less than 1 percent most saving accounts generate.

Your Financial Wellness and Retirement

Many of the 2024 tax changes are geared toward retirement. This upcoming year presents the perfect opportunity to review your retirement-planning strategies and make actionable changes. Most employers have a company that manages your retirement plan. Check with your employer to see if you can meet with your plan provider to go over where your money is invested and what changes you can make. Most providers offer this service free of charge.

In addition, look at how your retirement contributions are taken out. Are you contributing to a pretax 401(k) or a Roth 401(k)? Switching to a pretax 401(k) can be a great way to lower the taxes you pay in 2024. Talk with an advisor to determine which type of plan fits your financial situation the best.

Financial wellness extends beyond just planning for retirement. You need to have provisions in place to better your situation today and 10 years down the road. Start by creating a budget. Then, tackle your debt. Paying off just one credit card can remove stress from your life and give you more stability.

Financial wellness isn’t a one-size-fits-all approach. What worked for someone might not work for you. Take the time to dive into what strategies fit your situation the best. Don’t be afraid to make changes on your journey. Building stability relies on adapting to changing conditions, like tax-law adjustments.

Conclusion

The year 2024 doesn’t have to be another year of pinching pennies and worrying about the future. Now is the to act and take control of your financial well-being by using the tax code to your advantage. Which of the discussed strategies can you start using in 2024?

Additional Resources

Budget tools: EveryDollar, Mint, Rocket Money

Financial podcasts: “The Dave Ramsey Show,“ ”BiggerPockets Money, “Couple Money”

Books: “Rich Dad Poor Dad,“ ”The Total Money Makeover,“ ”The Intelligent Investor”

The Epoch Times copyright © 2024. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.