As we turn the calendar and gear up for another tax season, it’s never too soon to look ahead and prepare for the upcoming landscape of the tax world. Our profession and taxpayers alike can take some solace in the fact that for 2023, there weren’t a whole lot of changes that will impact the 2024 filing season. By now, the COVID-19 relief packages, which so abruptly altered our rules and filings, have since fizzled out for the most part.

Kissler terry
Terry Kissler
Partner / Harris CPAs

I’ll touch on a couple of those changes that we as taxpayers got to enjoy the last few years that no longer are in effect. However, the purpose of this article is to look ahead to what’s changing down the road.

Let’s start with the immediate changes you’ll notice on your 2023 tax returns. As part of the COVID-19 relief tax packages, the IRS incentivized business owners to spend money at their local restaurants. For 2021 and 2022, business meals were 100% deductible to the business. For 2023, the deductibility of business meal expenses reverted back to 50%. You also may notice some standard inflation adjustments for various retirement plans and health savings plans.

On your individual returns, there will be an increase in the standard deduction and, of course, a shift in tax brackets. To highlight a few of these changes, this is what you’ll see:

  • The standard deduction for married couples has increased from $25,900 to $27,700, while single individuals will see that rise from $12,950 to $13,850.
  • The maximum 401(k) contribution limit has gone from $20,500 in 2022, up to $22,500 in 2023. For your Roth and traditional IRAs, you’ll see that limit go from $6,000 ($7,000 if age 50 or older) to $6,500 ($7,000 if age 50 or older) in 2023. Keep in mind, you have until April 15 of 2024 to max out your 2023 IRA contribution.

Changes to know

Let’s shift gears to tax changes a little further on the horizon. These we can actually plan for and be prepared when it happens. The Tax Cuts and Job Act (TCJA), put into action on Jan. 1, 2018, drastically changed the federal tax code. These changes, however, will sunset after 2025, meaning in 2026 our tax laws as we’ve grown to know and understand will shift back to how it was in 2017 – adjusted for inflation, of course.

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Here is what to expect, just to name a few important points:

  • The tax bracket rates will change. The lowest bracket of 10% for low-income earners should remain the same. But the rates on the various brackets working up to the highest earners will increase by 1% to 4%, depending on the bracket.
  • The high standard deductions that taxpayers have enjoyed over the past several years, along with the increased child tax credit, are set to expire and return back to pre-TCJA levels. This means it’s likely more individuals will be itemizing deductions again.
  • Charitable donations have been deductible as an itemized deduction up to 60% of your adjusted gross income (100% during the COVID-19 relief years) and will return back to 50% of adjusted gross income after the TCJA expires. For example, if your adjusted gross income (AGI) is $100,000, you could deduct up to $50,000 as charitable donations on your tax return. Any donations above that would be carried forward to deduct in a later year.

Since the TCJA rules came into effect, we’ve seen drastic changes in estate tax exemption limits. Pre-TCJA, the estate tax exemption for individuals was $5.49 million, and married couples was $10.98 million. We’ve seen those figures climb to $13.61 million for individuals and $27.22 million for married couples in 2024. The inflation-adjusted estimate for 2026 estate tax exemption limits is currently around $7 million for individuals and $14 million for married couples.

With the distinctly higher limits we're experiencing now, the next two years may be your prime opportunity to transfer assets out of your control and into that of your heirs. As farmers and ranchers, your most valuable asset is likely the land you own. Keep in mind, that upon your passing, that land, along with all your other assets, gets valued as of the date of your death and added to that estate limit. So if you are someone whose land, investments, cash and other assets (including your ownership if these assets are held in LLCs or other entities) exceed those $7 or $14 million dollar values, it very well could impact those beneficiaries of your estate. Don't wait to speak to your attorney and accountant about these possible issues.

These are just a few examples of changes to be aware of. Your trusted tax adviser can help you navigate these changes, along with others that will change the tax landscape in the near future.