In an effort to keep pace with inflation and provide clarity to taxpayers, the Internal Revenue Service (IRS) has announced the updated income tax brackets and standard deduction amounts for tax year 2024. These figures will come into effect when Americans file their tax returns in early 2025.

The adjustments made by the IRS each year are aimed at safeguarding taxpayers from the impact of inflation. However, it's important to note that these changes will not significantly alter an individual's tax burden. Rather, the adjustments are designed to prevent higher taxes if incomes rise in line with inflation.

For the upcoming tax year, the federal standard deduction will increase across various filing statuses. For individuals and married people filing separately, the standard deduction will rise to $14,600, up from $13,850 in the current year. Meanwhile, married couples filing jointly will see an increase to $29,200, compared to the current amount of $27,700. Individuals filing as head of household will have a standard deduction of $21,900, up from $20,800.

While most taxpayers typically claim the standard deduction, those whose itemized deductions exceed the standard deduction are encouraged to do so, as it can lead to greater tax savings. Itemized deductions include expenses such as mortgage interest, charitable contributions, and a certain portion of state and local income taxes.

The 2024 federal income tax code will continue to feature seven tax rates, ranging from 10% to 37%. Each rate corresponds to specific taxable income brackets. Individuals with taxable income exceeding $609,350 ($731,200 for joint filers) will fall into the highest tax bracket of 37%. It's important to note that taxable income is calculated by subtracting eligible tax breaks from gross income.

In addition to the income tax adjustments, the IRS has also made changes to other tax-advantaged accounts. Participants in a Flexible Spending Account (FSA) will be able to save up to $3,200 in 2024, a $150 increase from the previous year. This account enables individuals to set aside pre-tax income for medical expenses.

Furthermore, the IRS recently announced higher contribution limits for tax-advantaged retirement accounts such as the 401(k) and Individual Retirement Account (IRA). These revised limits provide individuals with more opportunities to save for retirement and potentially reduce their taxable income.

For a complete understanding of the adjustments and other tax changes coming in 2024, taxpayers are encouraged to visit the IRS website for further information on tax-inflation adjustments.

As the new tax year approaches, it is vital for individuals to stay informed and plan accordingly to make the most of available deductions and maximize potential savings on their tax returns.