One of the few benefits of inflation is that the Internal Revenue Service recently announced the annual inflation adjustments for more than 60 tax provisions for tax year 2024. Revenue Procedure 2023-34 provides the detail of these annual adjustments. These generally apply to tax returns that will be filed in 2025.
An increase in federal income tax brackets, slightly outpacing inflation, means that some taxpayers will pay less tax. The standard deduction and the thresholds for each tax bracket are increased 5.4%. This is the second largest increase in the past 30 years, following the 7.1% hike in 2023.
Standard deduction, SALT
The standard deduction for individuals increases to $14,600 and to $29,200 for married couples. Many taxpayers save tax dollars by claiming the standard deduction instead of itemizing deductions, that include charitable donations and medical expenses. Deductions for state, local, sales, income and property taxes (SALT) remain in place and are limited to a combined total of $10,000 or $5,000 for married taxpayers filing separately.
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Capital gains thresholds
The thresholds for paying capital gains taxes are also increasing. No capital gains tax is due for single taxpayers with income up to $47,025 and joint-filers with income up to $94,050. Many taxpayers will pay the 15% rate. Yet, a 20% rate applies if income falls into the 35% ordinary tax rate bracket or above.
Health, medical savings accounts
The 2024 annual limit on deductions to a health savings accounts (HSA) for an individual with self-only coverage under a high deductible health plan (HDHP) is $4,150 and $8,300 for a family. The HDHP must have a deductible of at least $1,600 for an individual and $3,200 for a family.
For medical savings accounts (MSA), an HDHP must have an individual deductible of at least $2,800 but not more than $4,150. For a family, the deductible must be at least $5,550 but not more than $8,350.
Retirement account contribution limits
The 401(k) plan contribution limit and other similar types of employer sponsored plans is increased to $23,000 plus an additional $7,500 for those age 50 and above. The individual retirement account (IRA) contribution limit is increased to $7,000 plus an additional $1,000 for age 50 and above.
Federal estate, gift tax
The federal estate Tax exclusion for decedents in 2024 increases to $13.61 million per person ($27.2 Million for a married couple.) An individual can make lifetime gifts up to that amount without incurring a federal gift tax.
The separate, annual gift exclusion, increases to $18,000. This allows an estate owner to make $18,000 gifts to as many individuals as they choose. Married couples can make joint gifts of $36,000 to as many individuals as they choose, with no gift tax due.
Consider how these changes may impact your plans and take steps early to minimize taxes that may be due for 2024. A professional financial adviser can assist you with income and estate tax planning that is coordinated with your estate attorney and tax preparer.
Source: irs.gov Revenue Procedure 2023-34
This is intended for educational purposes only and should not be construed as personalized financial advice. Please consult your financial professional regarding your unique situation.
The U.S. Department of Agriculture forecast grocery prices overall to fall by 0.6% in 2024, but experts say some items could still cost more this year.
Car insurance costs are rising faster than overall inflation—here’s a closer look
Car insurance costs are rising faster than overall inflation—here’s a closer look
The cost of car insurance shot up 19% in just one year, the latest Bureau of Labor Statistics data shows, significantly more than the overall inflation rate of 3%.
The vast increase outpaced every other spending category tracked by the BLS in November. It is strikingly out of place alongside otherwise cooling inflation. What’s more, the cost of new cars grew just 1.3% since last year after a period of record highs, and the cost of used cars and trucks actually fell.
So why the increase in car insurance costs? CheapInsurance.com identified reasons insurance costs are spiking, and compared historical inflation to the rising cost of car insurance using BLS data.
While the past year’s insurance premium spikes have been particularly jarring, car insurance costs have increased faster than overall inflation for most of the past decade. That’s largely due to faster cost increases in vehicle repairs, medical care, and (to some extent) legal costs, which all directly affect insurance agencies’ expenses.
Ownership and use of cars are also on the rise, meaning more congested roads and, in turn, more accidents. To top it off, distractions while driving have surged in the age of technology, again causing costly crashes that insurance providers must cover.
Repair frequency and costs drive up car insurance premiums
Riskier driving habits, expensive repairs, and severe weather events are largely to blame for the recent spike in car insurance premiums.
Traffic fatalities have dropped from 2021 highs but remain elevated compared to pre-pandemic levels, Department of Transportation data shows. Insurance Information Institute CEO Sean Kevelighan told NPR that people “picked up some risky habits” during the pandemic, when stay-home orders meant fewer cars on the road. The return of denser vehicle traffic hasn’t tamed those behaviors.
More accidents have increased the need for services. Paired with higher labor costs, mechanic shortages, more challenging repairs in tech-enabled cars, and continuing supply chain issues, the cost of car repairs is up 8.5% annually as of November. As insurers are often the ones footing the bill, they have increased their prices in turn.
Natural disasters like hurricanes and floods also contribute to the rising costs. As climate change causes more severe and frequent extreme weather events, insurance companies must cover more claims. Losses due to catastrophes in the first half of 2023 were the highest in over 20 years, according to the Insurance Information Institute. Areas more prone to extreme weather, like Florida, are especially feeling the heat as insurance companies raise rates even higher or pull out altogether.
U.S. personal auto insurers are operating at an underwriting loss, meaning that the premiums paid by their customers don’t fully cover the costs insurers pay out in claims each year. III executive Dale Porfilio said the industry likely won’t become profitable again until 2025. For drivers, that will likely mean continued insurance cost bumps.
Story editing by Ashleigh Graf. Copy editing by Kristen Wegrzyn.
This story originally appeared on CheapInsurance.com and was produced and distributed in partnership with Stacker Studio.
Kevin Kingston, CLU, Chartered Financial Consultant, is managing director and financial adviser at Savant Wealth Management; savantwealth.com