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The New 2024 Tax Brackets: How Are They Different to 2023?
The New 2024 Tax Brackets: How Are They Different to 2023?
If you’ve made it through tax day in 2024, congratulations! If you’ve filed an extension, you have until October to get your paperwork to the IRS. As tax laws are constantly changing, it’s always a good idea to keep your eye on the horizon and plan for the future.
A major part of this is knowing the new IRS tax brackets for the 2024 tax year. If you’re out of the loop, keep on reading. We’ll tell you all about when you can file taxes in 2024, 2023 vs 2024 tax brackets, and how self-employed individuals can lower their tax brackets in 2024.
Table of contents
When are taxes due in 2024?
Let's first talk about one of the most important dates on your calendar: Tax Day. In 2024, the deadline to file your 2023 federal income tax return is April 15. This is the date by which most Americans need to submit their tax forms and pay any taxes owed.
If you feel like you need more time, you can file for an extension which will give you until October 15, 2024 to complete your return. Remember that an extension to file is not an extension to pay. You need to estimate and pay any taxes you owe by April the deadline so that the IRS doesn’t hit you with late fees.
If you work for yourself, you also need to file your self-employed tax returns on this day. Certain business structures like LLCs and S Corps may have earlier filing deadlines. A self-employed tax calculator can help find your SE tax liability.
The self-employed tax rate is 15.3% of net earnings, with 12.4% going towards Social Security taxes and 2.9% going towards Medicare taxes. You have to pay this tax if you earned over $400 in 1099 income in a year.
Self-employed individuals have to make estimated tax payments if they owe over $1,000. These payments are made through the year in four installments. A quarterly tax calculator is a good tool that can help calculate your quarterly taxes.
2023 vs 2024 tax brackets
The IRS adjusts the tax brackets every year based on inflation. For the 2023 tax year, there were no changes to the tax rates, only to the income thresholds. We’ll talk about tax rates a little bit later.
Tax brackets are like income buckets that decide how much tax you pay. The more you earn, the higher the chunk of your income that goes to taxes. It's like climbing a ladder where each step up means a higher tax rate for that portion of your income.
The US uses a progressive tax system. This means that people with lower incomes pay less in taxes, while those with higher incomes pay more. As your income grows, your tax rate goes up too. Let’s look at the tax brackets for the 2024 tax season (2023 tax year).
The new IRS tax brackets for the 2024 tax year have also been released. While the 2025 tax season is still far away, it’s never too early to start planning your tax strategy.
What are tax rates? How is it different from tax brackets?
We’ve shown you the 2023 vs 2024 tax brackets but now it’s time to talk about tax rates. Think of your income as being split into different chunks, called tax brackets. Each chunk is taxed at a different rate, which is the percentage of that income you owe in taxes.
Tax brackets are basically ranges of income with specific tax rates. In a progressive tax system, as you earn more, you move into higher brackets with higher rates.
These tax rates are just the percentages applied to those income chunks. Not all your income gets hit with the highest rate. For example, if the top tax rate is 40%, only the income in that top bracket is taxed at 40%. So tax brackets break your income into sections, and tax rates tell you how much you owe for each section.
Marginal vs effective tax rates
How can I lower my tax bracket?
As a self-employed individual, there are several ways you can use to lower your tax bracket and reduce your overall tax bill. Firstly, maximizing your 1099 deductions is essential. Take advantage of all the deductions available to you as a self-employed person.
This can be deductions for expenses like advertising and marketing, vehicle mileage, home office expenses and internet costs. A 1099 tax calculator can help find specific deductions in your line of work.
Another effective method is to contribute to retirement accounts. By contributing to a retirement account like a SEP-IRA or Solo 401(k), you can lower your taxable income. If you have a high-deductible health plan, you can use a Health Savings Account (HSAs). Contributions to an HSA are tax-deductible and can help you save money and make tax season for 2024 a little easier.
If you're a small business owner looking to reduce your taxes, consider setting up an S Corporation. With an S Corp, you can divide your income into two parts: salary and distributions. This can help you lower the taxes on your earnings. For example, if you're a freelance writer earning $60,000 a year, forming an S Corp lets you pay yourself a reasonable salary and take the rest as distributions. This way, you only pay SE tax on your salary. Just make sure your salary is reasonable for the work you do to avoid raising red flags with the IRS.
You can also lower your taxes by donating money to charity. When you make a charitable contribution, you can deduct that amount from what you owe the IRS. Even if you just volunteer your time, you can still deduct related expenses. Just make sure to keep good records in case the IRS asks for proof.
If you’re still unsure about the 2024 tax brackets, you can use FlyFin. FlyFin’s CPAs provide unlimited support and can answer questions like when can I file taxes for 2024, how to use the 2024 tax brackets and how you can navigate all the IRS updates to tax laws. AI also finds all your business deductions, making sure you save the most possible.
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