Your favorite tax numbers updated for 2024

By Mark Neumeister, CPA, CGMA

I’m a tax guy and I can never remember how much the annual gift tax exclusion is for this year or next. Many of our common federal tax numbers are automatically updated by IRS each year. Here are a few of those updates and a comment or two on how you might use these changes to your benefit.

Lifetime gift and estate tax exemption. The estate and gift tax applies to transfers of money or property a taxpayer makes during life or at death. The exemption from tax amount for 2023 is $12.92 million and will increase in 2024 to $13.61 million. Perhaps more importantly, the lifetime exemption amount is scheduled to be cut by approximately half after 2025. It’s not too early to start planning for this event.

Congress has set up a use or lose it scenario. How big is this opportunity? Let’s assume that by 2025 the exemption has increased to approximately $14 million and that the cut that occurs after 2025 is $7 million. At the current
gift/estate tax rate of 40%, that calculates to $2.8 million of tax. Many strategies can be employed and tailored to your situation to take advantage. Many estate planners are advocating for the setup (but not yet funding) of one or more trusts now. That way taxpayers can be ready to fund their trusts late in 2025, if Congress fails to extend the benefit.

Bonus depreciation. Business owners will want to take note that the phase-out of this popular tax benefit has started. Previously, 100% of a qualified asset purchased could be expensed in the year of purchase. For 2023, the percentage of a qualified asset that can be immediately expensed has been reduced to 80%. Next year, that percentage comes down to 60%.

Consider carefully how you might time your business asset purchases to best take advantage of the phase-out of bonus depreciation.

Standard deduction / itemized
deductions. We have seen over the last several years fewer and fewer individuals that itemize their deductions. That’s due to the increased standard deduction. You get to deduct the higher amount of standard or itemized deductions.

Some taxpayers have found it beneficial to “bunch” their
itemized deductions to allow them to get over the standard threshold in one year. An example of “bunching” might be to pay two or three year's worth of normal charitable donations in a single tax year. The use of charitable giving
vehicles such as donor advised funds, can help manage the timing of when a charity receives your donation.

Educator expenses. I’m married to a teacher, so this item must be included in this article. This unique benefit does not change from this year to next. For 2024, eligible elementary and secondary school teachers can claim an above-the-line deduction for up to $300 per year of expenses paid for books and certain other supplies used in the classroom ($300 in 2023). Every teacher I know spends way more than this for classroom supplies.

Annual gift exclusion. I almost forgot to tell you. For gifts made in 2023 the annual gift tax exclusion is $17,000. For 2024, the annual gift tax exclusion will go up to $18,000.

Mark O. Neumeister, CPA, CGMA, is a partner at Arledge, the largest locally owned accounting firm in the Oklahoma City metropolitan area.