How to Save Money on Taxes in 2024: A Guide to the New Tax Brackets

Are you wondering how the new tax brackets for 2024 will affect your income and savings? In this article, we’ll explain what the changes are and how you can plan ahead to reduce your tax liability.

What are tax brackets and how do they work?

Tax brackets are the ranges of income that determine how much federal income tax you pay. The more you earn, the higher your tax rate. However, you don’t pay the same rate on your entire income. Instead, your income is divided into segments, each taxed at a different rate. This is called a progressive tax system.

For example, let’s say you’re single and your taxable income in 2024 is $50,000. According to the IRS, the tax brackets for single filers in 2024 are:

• 10% for income up to $10,275
• 12% for income from $10,276 to $41,775
• 22% for income from $41,776 to $89,075
• 24% for income from $89,076 to $170,050
• 32% for income from $170,051 to $215,950
• 35% for income from $215,951 to $539,900
• 37% for income over $539,900

This means that you don’t pay 22% on your entire $50,000 income. Instead, you pay:

• 10% on the first $10,275 ($1,027.50)
• 12% on the next $31,500 ($3,780)
• 22% on the remaining $8,225 ($1,809.50)

Your total federal income tax would be $6,617, which is an effective tax rate of 13.2%.

4 Ways to Save Money on Taxes in 2024

Now that you know how tax brackets work, here are some tips on how to lower your taxable income and pay less taxes in 2024:

1. Contribute to a retirement account.

One of the best ways to reduce your taxable income is to save for your future. By contributing to a traditional IRA or a 401(k) plan, you can defer taxes on your earnings until you withdraw them in retirement. For 2024, the contribution limit for both IRAs and 401(k)s is $20,500 (or $27,000 if you’re 50 or older). If you max out your IRA and 401(k) contributions in 2024, you could lower your taxable income by $41,000 and save up to $9,020 in taxes (assuming a 22% marginal tax rate).

2. Claim tax deductions and credits.

Another way to lower your taxable income is to take advantage of the various tax deductions and credits that are available to you. Tax deductions reduce your taxable income by the amount of the deduction, while tax credits reduce your tax liability by the amount of the credit. Some of the most common tax deductions and credits include:

• The standard deduction: This is a fixed amount that you can deduct from your income without itemizing your expenses. For 2024, the standard deduction is $12,950 for single filers and $25,900 for married couples filing jointly.
• The child tax credit: This is a credit that you can claim for each qualifying child under the age of 18. For 2024, the child tax credit is worth up to $3,600 per child (or $3,000 per child aged 6 to 17). The credit is partially refundable, meaning that you can get some of it back even if you don’t owe any taxes.
• The earned income tax credit: This is a credit that you can claim if you have low to moderate income from work. The amount of the credit depends on your income level and the number of qualifying children you have. For 2024, the maximum earned income tax credit ranges from $543 for single filers with no children to $6,728 for married couples filing jointly with three or more children.

3. Adjust your withholding or make estimated payments.

If you’re an employee, you can adjust your withholding on your W-4 form to match your expected tax liability for the year. This way, you can avoid overpaying or underpaying taxes throughout the year and get a smaller refund or balance due at tax time. If you’re self-employed or have other sources of income that are not subject to withholding, such as interest, dividends or capital gains, you may need to make estimated tax payments every quarter to avoid penalties and interest. You can use Form 1040-ES to calculate and pay your estimated taxes.

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4. Plan ahead for life events and changes.

Finally, you can save money on taxes by planning ahead for any life events or changes that may affect your tax situation. For example, if you’re getting married, divorced, having a child, buying a home, selling a property, starting a business, retiring or inheriting money, you may want to consult a tax professional to see how these events will impact your taxes and what steps you can take to minimize them.

Conclusion

The new tax brackets for 2024 may seem daunting, but they don’t have to be. By understanding how they work and following some simple strategies, you can lower your taxable income and pay less taxes in 2024. Remember, the key is to plan ahead and take advantage of the opportunities that are available to you.

If you need more help with your taxes, you can always schedule an on-line appointmentwith us.

FAQs

Q: What are the new tax brackets for 2024?
A: The new tax brackets for 2024 are:

• 10% for income up to $10,275
• 12% for income from $10,276 to $41,775
• 22% for income from $41,776 to $89,075
• 24% for income from $89,076 to $170,050
• 32% for income from $170,051 to $215,950
• 35% for income from $215,951 to $539,900
• 37% for income over $539,900

These brackets apply to single filers. For married couples filing jointly and heads of households, the brackets are different.

Q: How do I calculate my taxable income?
A: Your taxable income is your gross income minus your adjustments, deductions and exemptions. Your gross income is the total amount of money you receive from all sources during the year, such as wages, salaries, tips, interest, dividends, capital gains, business income, alimony, pensions and social security. Your adjustments are certain expenses that you can deduct from your gross income before applying the standard or itemized deduction. Some examples of adjustments are student loan interest, IRA contributions and self-employment taxes. Your deductions are either the standard deduction or the itemized deduction.

The standard deduction is a fixed amount that you can deduct from your adjusted gross income without listing your expenses. The itemized deduction is the total amount of expenses that you can deduct from your adjusted gross income if they exceed the standard deduction. Some examples of itemized deductions are mortgage interest, property taxes, medical expenses and charitable contributions. Your exemptions are the amounts that you can subtract from your taxable income for yourself and your dependents. For 2024, the personal exemption is eliminated and the dependent exemption is replaced by the child tax credit and other credits.

Q: What is the difference between marginal tax rate and effective tax rate?
A: Your marginal tax rate is the percentage of tax that you pay on your last dollar of income. It is determined by the tax bracket that your income falls into. Your effective tax rate is the percentage of tax that you pay on your total income. It is calculated by dividing your total tax liability by your taxable income.

Q: How can I lower my marginal tax rate?
A: You can lower your marginal tax rate by reducing your taxable income. You can do this by increasing your adjustments, deductions and credits or by shifting some of your income to lower-tax years or sources.

Q: How can I lower my effective tax rate?
A: You can lower your effective tax rate by reducing your total tax liability. You can do this by increasing your adjustments, deductions and credits or by taking advantage of preferential tax rates on certain types of income such as long-term capital gains and qualified dividends.

IRS.gov

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