The recently announced IRS inflation adjustments for 2024 taxes are all positive for investors and taxpayers, but financial advisors need to make sure their clients are taking advantage of the changes, said attorney Edward Renn of the Withers law firm in New York City.
There were no surprises in the tax adjustments that impacted more than 60 tax provisions announced earlier this month, Renn said, but advisors will be the key to enabling their clients to benefit from the new rules. The announcement includes adjustments to tax rate schedules, marginal rates, alternative minimum tax exemptions, estate exclusion amounts, and more.
“Financial advisors should be proactive in reaching out to their clients about the new rules, because many investors do not know the right questions to ask, or are not aware they should even be asking questions,” Renn said in an interview. He focuses his practice on private client matters including tax planning, retirement planning, estate planning, income maximization, and wealth preservation, particularly for high-net-worth individuals.
Some of the changes involve increases in the standard income tax deduction, increases in the marginal tax rates and increases in the amount of estates and gifts that can be transferred without being subject to taxes. A more complete list can be found here.
“The taxes or benefits that are adjusted for inflation generally fall into three categories: transfer taxes for estates and gifts; income tax rates; and benefit payments,” Renn said. “For instance, the amount of an estate that can be transferred to an heir without a tax is now $13.6 million, which was $12.9 million for 2023.”
“The estate tax only applies to a small slice of the universe of taxpayers but for those affected it is a major change, and it is important for them to know about,” he said.
Likewise, the $1,500 increase in the standard deduction for married couples to $29,200 is a change taxpayers need to be aware of. “Many more people now use the standard deduction rather than itemizing, so it is important to a lot of people,” Renn noted.
Other changes savers should be aware of are the increases in the amounts that can be contributed to 401(k) accounts and other retirement savings accounts, he said.
“People should generally be happy with the inflation adjusted changes because the trends are all positive. But most individuals do not pay enough attention to the annual changes,” Renn said. “That is why advisors are the key to individuals being able to take advantage of the new rates.
“Advisors often say, ‘My client did not ask, so I did not go into it.’ But people don’t even know they should be asking questions, so advisors would be well served to be proactive and tell clients which changes may affect them,” he said. “A failure to plan is a default to paying taxes.”