The IRS just released its new tax brackets and rates for the upcoming tax year, and these numbers determine how much of your income goes toward taxes. Here to break down the big changes you need to know about this tax season is senior correspondent Kerry Hannon. So, Kerry, let’s start with the basics. What should taxpayers know about the new brackets and rates?
00:17 Kerry Hannon
Well, right Ally, the most important thing that happens every year is that the government, the IRS, adjusts your tax bracket and indexes it to inflation. So, you know, it’s what they call bracket shifting so that your income doesn’t move into a higher tax bracket because of inflation. That’s what we’re seeing this year. Again, they are simply adjusting them marginally to account for inflation.
00:50 allie
I understand. So if someone makes the same amount of money in 2024 and 2025, what kind of difference will they see when they file next year? Is there any difference?
01:00 Kerry Hannon
Yeah, you know, interestingly, you might end up paying a little less because if you earned the same amount in 2024 and 2025 because of this adjustment in the inflation rate, the new brackets and increased that standard deduction. Therefore, you may pay a little less.
01:17 allie
And what about the tax outlook for retirees? How is that changing?
01:23 Kerry Hannon
Yeah, the big thing that came up in the new tax bill is that seniors, if they’re 65 or older, will get a temporary $6,000 tax deduction on top of the standard deduction for 2025, 2026, 2027 and 2028. So it’s just a short time and this will phase out based on your income level. So I think individuals are at 75,000 and couples are at 150,000, those getting 6,000, so it’s a maximum of 6,000 for that. So that’s a raise retirees can look forward to.
01:58 allie
Now, the state and local tax deduction, also known as SALT, jumped from 10,000 to 40,000 this year. Why is it important and who will benefit most?
02:11 Kerry Hannon
Ally, if you’ll excuse me, I wanted to say one more thing about the last question: the Medicaid tax, there are some big changes to Medicaid that will also affect seniors in a way of having trouble increasing costs and having long-term care. So, back to the salt. I’m sorry. So it’s like there’s an impossible win and an impossible loss for seniors in the tax bill. But here’s the interesting thing about salt that increased the deduction, which is fantastic, they increased that, but this is where I have to say, talk to your tax professional because if you live in a high tax state, a state with high state and local taxes, this is imperative. This is a great way to cut your bill. This is if you detail, of course. So the idea is that you might want to try to do a little planning so that, if your local laws allow it, you can take that entire deduction in one year.
02:51 allie
And finally, Carrie, we hear tax advisors talk about accruing deductions. What does that mean? What is bundling and how can it help people maximize their tax savings?
03:07 Kerry Hannon
Yeah, bundling is kind of a great strategy for a lot of people because yeah, the standard deduction is pretty big these days. Uh, but if you’re someone who is charitably inclined and you want to give your charitable deductions, you have to exceed that standard deduction. So one way to do it is to take what could be two years of your charitable deductions and put them all into one year and then get the full impact of that charitable deduction because it’s above the standard deduction. That’s one way to do it. This can also help with medical expenses and get over that certain percentage that needs to be exceeded in order to write off those expenses beyond the standard deduction.
03:52 allie
And Carrie, great ideas. Everything we needed to know about the new taxes. Thank you so much.
03:56 Kerry Hannon
Thanks, Ellie.
03:58 Speaker A
METRO.