‘Your Rich BFF’ Vivian Tu: 2024 Tax Changes You Need To Know About
Written by
Katie Wudel
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Tax season is here once again. This might not be your favorite time of year, but there are a few tax changes you should know about.
Vivian Tu, also known as Your Rich BFF, explained some of these tax updates. Here’s what she revealed and how these changes affect you.
Income Tax Brackets Adjustment
A significant update for 2024 is the upward shift in income tax brackets. This adjustment means that income thresholds will now fall into different tax brackets compared to the previous year.
“You need to earn more for your dollars to start being taxed at the next tax bracket,” said Tu during an episode of her show. “This change was implemented to avoid a phenomenon known as “bracket creep,” which happens when taxpayers are pushed into higher income brackets even though their purchasing power is essentially unchanged due to steeper prices for most goods.”
The IRS’s decision to adjust the tax brackets reflects an effort to accommodate the rising cost of living, ensuring that Americans aren’t disproportionately taxed on their income amidst escalating prices. This shift potentially increases your take-home pay and affects how much you’ll pay in taxes.
Retirement Account Adjustments
This year also brings significant updates to retirement account contributions. The limits for company-sponsored retirement plans have been increased to $23,000 for individuals under 50 and up to $30,500 for those aged 50 and above.
For individual retirement accounts (IRAs), the contribution limits have risen to $7,000 for those under 50 and $8,000 for individuals aged 50 and above. These adjustments are designed to maximize the potential of compound interest over time.
According to Tu, investing an additional $500 early on can yield more than $15,000 by age 60, assuming an 8% to 10% annual return. This emphasizes the importance of maximizing retirement contributions whenever possible.
“For everyone planning for retirement, it’s super important to take note of these changes,” said Tu. “Even if they seem pretty small, they have a big impact on you and your retirement over time because the more money you can contribute and invest early on, the more compound interest can work for you.”
Capital Gains Modifications
The third notable change involves modifications to capital gains taxation, which could influence your investment strategy and future planning. Capital gains, or the profits from investments or property value increases, will see adjusted tax brackets.
In 2024, the threshold for capital gains tax has been revised to allow you to earn more before being subjected to higher taxes. This adjustment is another measure to counteract the effects of inflation, underscoring the importance of investing to safeguard against diminished purchasing power.
Navigating the Changes
Understanding these tax changes can be overwhelming, but they aim to accommodate the inflationary pressures on income and investments. Tu says the IRS is effectively raising the threshold for taxation to help citizens cope with the rising cost of living and encourage more substantial savings for the future.
Stay informed through regular research or setting up alerts for tax-related updates. Also, consulting with a CPA or tax expert can provide personalized advice and strategies for navigating these changes effectively.
Bottom Line
As you move through the tax season, it’s important to keep these updates in mind. By staying informed and seeking professional advice when necessary, you can make empowered financial decisions that align with your goals and circumstances. Understanding these tax changes is the first step toward optimizing your financial planning for 2024 and beyond.
Editor's note: This article was produced via automated technology and then fine-tuned and verified for accuracy by a member of GOBankingRates' editorial team.
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