Some taxpayers may get a break next year on their taxes thanks to the annual inflation adjustment of tax brackets set by the IRS.
The tax agency hasn’t yet announced the new brackets for 2024, but that is likely to come within the next days or weeks, according to Steve Grodnitzky of Bloomberg Tax, which has issued its own forecast for the new tax brackets as well as other policies that are adjusted for higher prices.
The IRS relies on a formula based on the consumer price index — which tracks a basket of goods and services typically bought by consumers — to adjust many tax policies each year, Grodnitzky noted. Last year, for instance, tax brackets were boosted by a historically large 7% due to the highest inflation in 40 years. Because inflation has eased this year, the annual boost is likely to be more moderate, with brackets rising about 5.4%,
Setting higher thresholds can help avoid so-called “bracket creep,” or when workers are pushed into higher tax brackets due to the impact of cost-of-living adjustments to offset inflation, without a change in their standard of living. It can also help taxpayers shave some of what they owe to the IRS if more of their income falls into a lower bracket as a result of the higher thresholds.
“For the income tax brackets, the dollar amounts have now increased, so for 2023, the lowest bracket for single people is those making up to $22,000, but now it’s up to $23,200, so it basically changes how much you are going to be taxed,” Grodnitzky said.
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Source: finance.yahoo.com