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Understanding Tax Brackets and Tax Rates: What's Changed in the 2024 Tax Brackets

Tax season can be a stressful time for both individuals and businesses. As they work to follow the ever-changing tax laws and regulations, it can become overwhelming to stay up-to-date with everything. An important part of those updates is the IRS income tax brackets for 2024.

Table of contents

What are the new tax brackets for 2024?...Read more

Will the tax brackets be the same for business entities?...Read more

How do you calculate your tax bracket?...Read more

How can you reduce your taxable income?...Read more

Additional deductions and exclusions for freelancers...Read more

What are the new tax rates for 2024?...Read more

What are the new tax brackets for 2024?

The new IRS tax brackets for 2024 were released early last year. Let’s explore the two types of taxes that individuals may qualify for and examine the extent of the changes compared to the previous year.

1. Federal Taxes

The IRS sets the federal tax brackets which determine the amount of federal income tax you owe based on your taxable income. In the United States, the federal income tax system is progressive, meaning as your income increases, you pay a higher percentage of taxes as your income increases on each additional dollar earned. The federal tax brackets usually change annually and are adjusted for inflation. Here are the 2023 vs 2024 federal tax brackets for different filing statuses:

Infographic entitled tax brackets listing the tax brackets and tax rates for different filing statuses for 2023 vs 2024.

When comparing the 2024 tax brackets vs 2023, we can see the increase in threshold amounts for each bracket. Every year, the IRS income tax bracket gets updated to account for inflation and prevent “bracket creep.” Bracket creep occurs when a taxpayer is pushed into a higher income tax bracket due to inflation, resulting in a higher average tax rate. The new tax brackets were also updated to account for the increased cost of living. The adjustment in the tax brackets for 2024 were made to prevent unfair taxation.

2. State taxes

State tax brackets vary depending on the state you live in. Each state has its own system for taxing income, and these systems can differ significantly from one another. Some states like Texas and Florida have no state income tax, while others like California and New York, have high state income tax rates. For instance, California's state income tax brackets for 2024 look like this: Single filer

1% on income up to $10,142
2% on income from $10,143 to $24,684
4% on income from $24,685 to $38,959
6% on income from $38,960 to $54,3081
...and so on.

These tax brackets will change for each filing status and state. In some states, the income tax brackets for 2024 may resemble the 2024 federal income tax brackets, featuring progressively higher tax rates as income increases. In other states, a flat tax rate may be applied to all income regardless of the amount earned. Your state may have different tax brackets or use a completely different system. For instance, Colorado has a flat tax of 4.4% on taxable income, while Wyoming doesn’t even collect state income tax.

Will the tax brackets be the same for business entities?

For businesses, the 2024 tax brackets will vary depending on the type of entity and the amount of income earned. Corporations will be subject to a flat tax rate of 21%, while pass-through entities like partnerships and S corporations will be subject to individual tax rates as mentioned above. It is important to note that when filing your taxes, you must refer to the tax brackets announced for the previous year. For instance, if you are filing taxes in 2024, you should apply the tax brackets announced for 2023. Similarly, if you are filing for 2025, you must refer to the 2024 tax brackets.

How do you calculate your tax bracket?

First, you must understand that you don’t pay taxes on your entire income, taxes are applied only on your taxable income.

What is taxable income?

How can you reduce your taxable income?

Knowing how to reduce your taxable income can lead to significant tax savings.

Standard deduction

Itemized deductions

Self-employed individuals and small business owners can write off ordinary and necessary expenses from their income as tax deductions. Here are some of the most common deductions that you can take: 1. Travel: Any travel expenses made by air, road or railway exclusively for business purposes. This also includes meals and lodging during the travel. 2. Office : Business owners either have an entirely dedicated office property or a home office. In both cases, they can deduct all the expenses made exclusively for the office. This includes rent, electricity, repairs and maintenance, internet, stationary, furniture and supplies. 3. Meals: Business meals while having meetings with clients or anyone who plays an important part in your business are 50% deductible. 4. Equipment : Any equipment or electronics purchased for the sole purpose of your business. 5. Medical expenses : If your medical expenses exceed 7.5% of your AGI, you can take those expenses as a deduction. This may include gym membership, fertility treatments, therapy sessions and dentures. Business owners can also take subscription deductions like Netflix or Spotify depending upon their business & personal circumstances. If you are self-employed and you pay yourself a salary, you can also deduct 50% of your self-employed taxes. Calculate your SE taxes accurately using a self-employed tax calculator . You can also use a 1099 tax calculator to accurately calculate how much you can save after taking all possible deductions.

Claiming tax credits

Tax credits can instantly lower your taxable income and can be a valuable tax break. While tax deductions lower your taxable income, tax credits are a dollar-to-dollar reduction of your tax bill. Here are a few common tax credits that you could be eligible for:

Infographic entitled Tax Credits listing tax credits that taxpayers can take, regardless of their 2024 tax brackets.

It’s important to check the eligibility rules before you claim these credits. Asking a tax pro to help is a good idea in these situations, especially if you think you might be eligible for more than one credit.

Additional deductions and exclusions for freelancers

Freelancers can take advantage of certain additional deductions and exclusions to reduce their taxable income further

Qualified Business Income Deduction

The QBID was introduced as part of the Tax Cuts and Jobs Act (TCJA) passed in December 2017. It allows certain self-employed individuals, partnerships, S corporations, trusts and estates to deduct up to 20% of their qualified business income. Not all types of income qualify for this deduction as there are limitations based on the type of business, the amount of income and the taxpayer's total taxable income.

Annual exclusion for gifts

What are the new tax rates for 2024?

Did you know that the amount of tax you owe is based on your taxable income and filing status? It's true! Knowing your tax rates and how they are applied can help you plan and prepare for tax season. Even though the tax rates change sometimes due to various economic, political, and budgetary requirements, they have remained the same in the last 5- 6 years.

Understanding your effective tax rate

A common, costly mistake made by many business owners is the inaccurate calculation of their 2024 tax bracket. As a result, they end up paying thousands of extra dollars in taxes. The correct analysis of tax brackets is crucial for minimizing tax liability. Calculating your effective tax rate is crucial for understanding your overall tax burden. For example, say you’re a freelance influencer and you have an annual income of $100,000 for the year 2024. Now, first you figure out your taxable income by taking all possible deductions. This includes travel, business meals ,home office and equipment. Let’s say they add up to $50,000. Total income = $100,000 Deductions = $50,000 ____________________________________ $50,000 After taking all your deductions, now you move on to the applicable tax credits to further reduce your taxable income. $50,000 Tax credits = $8,000 ____________________________________ Total Taxable income = $42,000 So, your taxable income reduces to $42,000 and you’ll be paying your taxes on this amount instead of $100,000.

How to calculate your effective tax rate

Your effective tax rate takes into account the different tax rates applied to different portions of your income. First, you break your taxable income into tax buckets.

Infographic entitled 2024 Tax Rates showing the tax rates for the 2024 tax brackets used to calculate tax liability.

- For the first $11,600 your tax rate is 10%, which means you pay $1,160. - For the next $47,150 your tax rate is 12% which means you pay $5,658. - For the remaining $41,250 your tax rate is 22% which means you pay $9,075 So for $100,000 taxable income, you pay $15,893 taxes i.e. at a 15.8% tax rate. Self-employed individuals also have to make estimated quarterly tax payments to the IRS. You can use a quarterly tax calculator to figure out what you owe. Staying informed about the 2024 tax brackets and how they will impact you is crucial for financial planning and budgeting. By understanding the changes that are likely to be made and how they will affect your bottom line, you can make smart decisions about your finances and ensure that you are taking full advantage of any tax breaks and credits are available to you. FlyFin offers a quick solution to maximize your tax deductions efficiently. With FlyFin, you can classify all your deductions within minutes, significantly reducing your taxable income. By taking advantage of every deduction available, you can lower your tax bracket, potentially saving you thousands of dollars. FlyFin also provides unlimited tax support with expert CPAs who ensure you take advantage of every applicable benefit.

2024 Capital Gains Tax

Learn about capital gains tax in 2024, including long-term vs. short-term rates, tax brackets, and strategies to minimize your tax bill on investments.

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October tax extension deadline

Taxpayers have to file a tax extension by the April 15 deadline. The tax extension will give you until October 15. This is only a filing extension, not a payment extension.

LEARN MORE →

2024 Estimated Tax Payments

Self-employed individuals have to make estimated tax payments to the IRS if they owe over $1,000. These payments are due throughout the year. Missing them can lead to penalties.

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Tax Brackets - 2023 Vs 2024

The new 2024 tax brackets have higher income thresholds as they are adjusted for inflation. Freelancers can lower their tax bracket by writing off business deductions.

LEARN MORE →

2024 Self employment Tax

Self-employment tax is paid by self-employed individuals who earn over $400. The self-employed tax rate is 15.3% of net earnings. Use tax deductions to lower taxes.

LEARN MORE →

2024 IRS Mileage Calculator

The IRS mileage rate in 2023 was 65.5 cents/mile. In 2024, it was increased to 67 cents/mile. Self-employed individuals can also write off mileage-related tax deductions.

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2024 Tax Credits

Tax credits reduce tax liability. There are many tax credits available to taxpayers. FlyFin’s CPAs can help you navigate the process.

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2024 Tax Filing

The tax filing deadline for the 2024 tax year is April 15, 2025. This is also the last day to file a tax extension. FlyFin is the best online tax filing tool for the self-employed.

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2024 Tax Laws

Tax laws are always changing. FlyFin’s expert CPAs can monitor these changes and help you navigate them while handling your filing process and lowering your tax bill.

LEARN MORE →

2024 Capital Gains Tax

Learn about capital gains tax in 2024, including long-term vs. short-term rates, tax brackets, and strategies to minimize your tax bill on investments.

LEARN MORE →

October tax extension deadline

Taxpayers have to file a tax extension by the April 15 deadline. The tax extension will give you until October 15. This is only a filing extension, not a payment extension.

LEARN MORE →

2024 Estimated Tax Payments

Self-employed individuals have to make estimated tax payments to the IRS if they owe over $1,000. These payments are due throughout the year. Missing them can lead to penalties.

LEARN MORE →

Tax Brackets - 2023 Vs 2024

The new 2024 tax brackets have higher income thresholds as they are adjusted for inflation. Freelancers can lower their tax bracket by writing off business deductions.

LEARN MORE →

What’s FlyFin?

FlyFin caters to the tax needs of freelancers, gig workers, independent contractors and sole proprietors. But anyone can file taxes through FlyFin! FlyFin tracks all your business expenses automatically using A.I. technology. Then, our CPA team files a guaranteed 100% accurate tax return for you – to save you a couple thousand dollars and a ton of time on your taxes. In addition, you can download the FlyFin app and have your taxes filed in less than fifteen minutes, saving time and money.

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