Return to flip book view

The LynnLeigh JournalLife. Investing. And Everything in BetweenAre you familiar with how our federal tax code originated?In 1909, progressives in Congress attached a provision for an income tax toa tariff bill. Hoping to kill the idea for good, conservatives proposedenacting such a tax as they believed 75% of states would never ratify aconstitutional amendment, according to the National Archives.Much to their surprise, the 16th Amendment was ratified in 1913,establishing Congress's right to impose a federal income tax. Initially, fewerthan 1% of the population paid income taxes. The rate was only 1% of netincome due to generous exemptions and deductions.Clearly, the tax code has changed dramatically over the years, and it willcontinue to change.TAX SHIFT 2024: UNDERSTANDING THENEW TAXATION RULESBy Kelly L. Olczak, CFP® Brief Market Update -Peering into 2024Tax Bracket and TaxRate ChangesNewsletterHighlightsRetirement PlanContribution ChangesJ A N U A R Y 2 0 2 4V O L U M E 1

We won’t cover each of the 63 changes. We will touch on the high points. If you have questions, please reach out to us.As always, if you have specific tax questions, feel free to check with your tax advisor.1. Tax brackets and tax rates have changed. Table 1 highlights the seven separate tax brackets for 2024 for single,married, head-of-household, and married filing separately.The Internal Revenue Service announced last year the annual inflationadjustments for more than 60 tax provisions (63 to be exact) for the tax year2024, including the tax rate schedules. As incorporated into law, the IRSadjusts various categories to account for inflation.It’s not a perfect measure, but the adjustments help mitigate the impact ofinflation on income. Without indexing, a cost-of-living raise, for example,could automatically push you into a higher tax bracket or reduce the value ofyour standard deduction.Annual inflation adjustments, however, do not cover all tax provisions. Wewon’t cover each of the 63 changes. We will touch on the high points. J A N U A R Y 2 0 2 4 V O L U M E 1Diving into the details

J A N U A R Y 2 0 2 4 V O L U M E 1

J A N U A R Y 2 0 2 4 V O L U M E 1For example, if you are married, filing a joint return, and your taxable income is $50,000, you would pay10% to the federal government on income up to $23,200. You would pay 12% on the remainder of yourincome up to $50,000.Source: IRS2. The standard deduction in tax year 2024 rises to $29,200 from $27,700 for those who are married andfiling jointly. The standard deduction for single filers and married and filing separately rises to $14,600from $13,850. For head of household, the standard deduction rises to $21,900 from $20,800.Source: IRS

J A N U A R Y 2 0 2 4 V O L U M E 1If you are 65 or older and single or head of household, you may take an additional deduction of $1,950. Ifmarried and filing jointly or separately, you may take an additional $1,550.Changes on the horizonThe Tax Cuts and Jobs Act (TCJA) of 2017 significantly increased the standard deduction, simplifying thefiling process, as it eliminated the need for many taxpayers to itemize. But it also scrapped the personalexemption.Unless extended, please be aware that many provisions of the TCJA will expire at the end of 2025.Among the expected changes:Individual income tax rates will revert to their 2017 levels.The standard deduction will be cut roughly in half, the personal exemption will return, and the child taxcredit will be reduced.The estate tax exemption will be reduced.The special 20% tax deduction for pass-through businesses will disappear.The cap of $10,000 on state and local income taxes, which is not adjusted for inflation, will disappear.Those who are married but file separately may deduct up to $5,000 if they itemize.3. Favorable treatment for long-term capital gains is a cherished tax break for investors. Long-term capitalgains, such as the profit on the sale of a stock held for more than one year, are taxed at a more favorable ratethan short-term gains. A short-term gain is taxed as if it were ordinary income.

J A N U A R Y 2 0 2 4 V O L U M E 14. The TCJA includes a 20% deduction for pass-through businesses. Limits on the deduction begin phasingin for taxpayers with income above $191,950 and $383,900 for joint filers in 2024.5. Other taxes you may be subject to or credits you may capture.High-income taxpayers are subject to the net investment income tax of 3.8%, levied on the lesser ofnet investment income or modified adjusted gross income over $200,000 for single filers and$250,000 for married filing jointly. These amounts have never been indexed to inflation. In general,net investment income includes but is not limited to interest, dividends, capital gains, rental androyalty income, and non-qualified annuities, according to the IRS. Net investment income generallydoes not include wages, unemployment compensation, Social Security Benefits, alimony, and mostself-employment income.Congress enacted the AMT, or the alternative minimum tax, in 1969 following testimony by theSecretary of the Treasury that 155 people with adjusted gross income above $200,000 had paid nofederal income tax on their 1967 tax returns. Limits were never adjusted for inflation and, in time,threatened tens of millions with a parallel tax system. More recently, annual patches were put intolace until the TCJA was passed, dramatically increasing the thresholds for avoiding the AMT. TheAMT exemption amount for 2024 is $85,700 for singles and $133,300 for married couples filingjointly.Exclusions for the estate, gift, and generation-skipping transfer will increase from $12,920,000 in2023 to $13,610,000 in 2024. Higher lifetime-exemption amounts are set to expire at the end of2025. Unless Congress makes these changes permanent, after 2025 the exemption will revert to the$5.49 million exemption (adjusted for inflation).The kiddie tax applies to unearned income, such asdividends or interest, for kids under the age of 19 andcollege students under 24. Your child will be required topay taxes on their unearned income in 2024, but if thatamount is more than $1,300 but less than $13,000, you maybe able to elect to include that income on your returnrather than file a separate return for your child.The child tax credit is $2,000 for each child that qualifies.The child must be under 17 years old at the end of the year.The refundable amount rises to $1,700 for tax year 2024, upfrom $1,600 in 2023. A refundable credit means that youcan take advantage of the credit above your tax liability, inthis case, up to $1,700.

J A N U A R Y 2 0 2 4 V O L U M E 1The IRA contribution limit for 2024 is $7,000 for those under age 50, and $8,000 for those age 50 or older.You can make 2024 IRA contributions until the federal tax filing deadline for income earned in 2024.This is up from 2023’s limits of $6,500 for those under age 50, and $7,500 for those age 50 or older. You can make2023 IRA contributions until your April 15th federal tax deadline for income earned in 2023.For the tax year 2024, you can have a modifiedadjusted gross income (MAGI) of up to $252,150 andmay qualify for the adoption credit of $16,810 if youincur adoption-related expenses. The amount of thecredit is reduced for taxpayers with a MAGI of morethan $252,150 and is eliminated when your MAGItops $292,150. The credit is nonrefundable, so theamount cannot exceed your tax liability. However,you may apply any excess credit amount to futureyears, up to five years.IRA ContributionsSEP-IRA LimitsYou can contribute up to 25% of the employee's total compensation or a maximum of $69,000 for the 2024 taxyear, whichever is less. That’s up from $66,000 in 2023. If you're self-employed, your contributions are generallylimited to 20% of your net income.We are mindful that the tax code is quite complex. We are happy to answer any questions you may have. Feelfree to consult with your tax advisor.B R I E F M A R K E T U P D A T EA blockbuster year that wasn’t supposed to happenLast month, we discussed some of the hazards that Wall Street analysts may encounter when forecasting marketreturns.On average, strategists predicted roughly a 2% decline for the S&P 500 Index in 2023, according to Bloomberg.When those who are given such a task encounter difficulties, we are hesitant to provide any predictionsregarding the stock market.When the final returns were tallied, 2023 turned out to be a banner year, surprising nearly everyone.

J A N U A R Y 2 0 2 4 V O L U M E 1Disciplined investors 1, Analysts 0Strategists came up short, allowing the patient, disciplined, and long-term approach to take top honors.Why did the market have a strong year? Let’s discuss three factors. As 2023 got underway, the prevalent view on Wall Street and many economists was that a recession wasinevitable. Economists have always struggled to pinpoint turning points in an economic cycle. In most cases, recessions sneak up on us. Last year, we observed the opposite. The loud din of recession calls failed to hit the mark. The miss was probably the biggest economic story of the year, especially for the millions of Americans who would have been thrown out of work.As the rate of inflation began to slow, the Federal Reserve, which had slammed on the monetary brakes in2022, eased up. In 2022, the Fed raised the fed funds rate by 4.25 percentage points, according to St. Louis Federal Reserve data. It was the fastest pace of rate hikes since 1980. The pace slowed to one percentage point in 2023, reducing a stiff headwind for stocks.

J A N U A R Y 2 0 2 4 V O L U M E 1 By December, the Federal Reserve had effectively shifted its stance and is now openly discussing potential interest rate cuts in the coming year. Of course, forecasts can change, but the shift fueled the market’s advance into the end of the year. While the S&P 500 Index ended 2023 just shy of its all-time early 2022 high, the smaller but better-known Dow Jones Industrials eclipsed its all-time high in December.One other variable helped fuel last year’s rise: the emergence of artificial intelligence, which is puttingadvanced programs into the hands of Main Street. The technology is in its infancy, but the potential is enormous, and cash began pouring into investments that could someday yield big dividends. Bottom line, the tech- heavy Nasdaq Composite posted a gain of over 40%. The same winners on the Nasdaq also powered gains in the S&P 500 Index.Peering into 2024Expect surprises. No one can accurately see into the future. As we saw in 2023, expect the unexpected.We believe that having a diversified portfolio is the best way to protect yourself against market volatility andachieve your financial objectives. While it won’t completely shelter you from market pullbacks, it hashistorically proven to be a strong strategy that can help you reach your financial goals.Although volatility can be unsettling, it is often temporary, as demonstrated by the failure of Silicon ValleyBank last year and, so far, the ongoing war in the Middle East.If we were to take a stab at issues on the front burner, we’d start with the economy.If inflation continues to slow down, it will take pressure off the Federal Reserve, and rate cuts could comesooner rather than later.Investors are currently betting on the soft-landing scenario. In this scenario, pricing pressure eases whileeconomic growth slows down slightly, avoiding a big hit to corporate profits. This scenario helped drivestocks last year.

J A N U A R Y 2 0 2 4 V O L U M E 1Investors are currently betting on the soft-landing scenario. In this scenario, pricing pressure eases whileeconomic growth slows down slightly, avoiding a big hit to corporate profits. This scenario helped drive stockslast year.While the Fed didn’t reduce rates in 2023, the year followed a similar pattern to 1985, 1995, and 2019, when theFed was able to engineer a soft landing, and stocks performed quite well.But, if economic growth slows too much, stalls, or a recession ensues, i.e., the hard-landing scenario, anytailwinds from a faster pace of rate cuts might easily be offset by weak corporate profits, as we have seen in thepast.Rate cuts in 1974, 1990, 2001, and 2008 failed to prevent a slide in stocks until investors anticipated aneconomic upturn.In other words, rate cuts that occur because the Fed “can,”not because they “must,” is the more preferred path, in ourview.I trust you have found this review to be informative. If youhave any inquiries or wish to discuss any other matters,please don’t hesitate to contact me or any team member.Thank you for choosing us as your financial advisor. We arehonored and humbled by your trust.As we bid farewell to 2023, may the New Year bring you excitement, adventure, and fulfillment. May theyear create cherished memories and be filled with joy. Happy New Year from all of us!Final thoughts...Finally, here’s to 2023! Boy, was it a humdinger. Talk about ROLLERCOASTER... But we more than survived,and I am so excited for 2024.It's been amazing diving into discussions about your financial goals and seeing the lightbulb moments duringour workshops. Your commitment toward shaping your financial future is super inspiring. Every conversation has been a step forward in making your financial dreams a reality. A huge thank you forbringing your energy and smarts to the table. We're here to navigate this financial journey with you, keepingthings fun and focused.

J A N U A R Y 2 0 2 4 V O L U M E 1LynnLeigh & Company - A Registered Investment AdvisorThis information is provided by LynnLeigh & Co. for general information and educational purposes based upon publicly available information from sources believedto be reliable – LynnLeigh & Co. advisors cannot assure the accuracy or completeness of these materials. The information presented here is not specific to anyindividual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayerfor the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or herindividual circumstances. The information in these materials may change at any time and without notice. Past performance is not a guarantee of future returns. As we continue navigating the world of finance together, let's keep the momentum going, making finance funand approachable. Here's to a year of empowering you to hit those financial targets and having a great timealong the way! Happiest of New Years to all of you!