In the past few years, inflation has surged. From groceries to gas, the cost of goods and services has increased in virtually every area of life. As the cost of living has skyrocketed, your income may not have kept pace with rising prices. This is of critical importance for those who are in the process of creating an estate plan, as the value of today’s dollar is almost certainly going to be worth less in the future. In response to inflationary concerns, the Internal Revenue Service (IRS) has increased its inflation adjustment from 2023. As a result, you may owe less in taxes from your income in 2024.
How Does the Inflation Adjustment Lower My Taxes?
The IRS applies inflation adjustments to income tax brackets. Typically, the more you earn, the more you pay in taxes as a percentage of your income. A person who earns $40,000 per year will pay a lower percentage of their income than someone who earns $400,000. Next year, your taxes may be lower due to the rise of the minimum income that falls within each tax bracket range. For example, if you are single and earned $45,000 in 2023, you will pay 22% in federal income taxes this spring. After the newest adjustment, you will only owe 12% of your income earned in 2024. As the income that qualifies under each tax bracket increases, your taxes will decrease because you will fall into a lower tax bracket. However, this projection assumes that your salary will hold steady between 2023 and 2024. If you received a salary increase to account for inflation, you may fall within the same tax bracket as the year before. In this scenario, your taxes may not be lower in 2024.
Has the IRS Adjusted Social Security for Inflation?
The adjusted income tax brackets may not apply to Social Security beneficiaries, but the IRS has also applied a Cost of Living Adjustment (COLA) to Social Security income. According to a fact sheet from the Social Security Administration, beneficiaries of Social Security and Supplemental Security Income (SSI) have received an 8.7% COLA for 2023. In 2024, beneficiaries will receive a 3.2% COLA, which is increase of over $50 per month. This new rate will start in January 2024 for Social Security beneficiaries and in December 29, 2023 for SSI beneficiaries. As a result, beneficiaries will receive an increase in each Social Security check they receive. The increase can help ensure that Social Security checks keep at pace with inflation.
Contact our Boulder, Colorado Estate Planning Attorneys
Inflation adjustments to income tax may affect your estate planning goals. As inflation rises and falls, the tax on your income and your eventual estate tax. For all of your estate planning needs, call the Braverman Law Group today. Our estate planning attorneys can help you understand the impact of tax adjustments on your estate. We will guide you through complicated tax laws to understand how to maximize the benefit to your estate while avoiding surprise penalties. To schedule a free, no-obligation consultation with one of our trusted Colorado estate planning attorneys, give us a call at (303) 800-1588.