Tax brackets are the income ranges that determine how much tax you owe. The Internal Revenue Service (IRS) adjusts these brackets each year to account for inflation. This year, the IRS has announced that it will be increasing the tax brackets by approximately 7% for each type of tax filer. This means that taxpayers in lower brackets may receive some relief from the higher provision thresholds.
Tim Steffen, Baird's director of tax planning, explains that this is done to prevent the increase in brackets due to inflation. This can push workers who receive annual wage increases due to the cost of living into higher tax categories, even though their standard of living has not changed. The annual gift tax exclusion is also increasing this year. This is the amount you can donate to another person without having to pay a gift tax.
Tax Reform ImpactThe Tax Cuts and Jobs Act of 2017 (TCJA) was a major overhaul of the US tax code. It made significant changes to the individual income tax system, including reducing the number of tax brackets and increasing the standard deduction. As a result of these changes, fewer taxpayers are itemizing their taxes. According to the Tax Foundation, only about 14% of taxpayers itemized their taxes after the approval of the TCJA, which is a 17 percentage point drop compared to before the law.
