Understanding the US Federal Tax Landscape in 2024
Individuals and businesses must understand federal tax rates and regulations. A clear understanding of income tax slabs, capital gains taxes , and corporate tax rates is essential for effective financial planning and decision-making. Grasping these concepts enables taxpayers to optimize their strategies, ensure compliance, and navigate the complex world of taxation confidently.
Join us as we discuss federal taxes in the US in 2024!
Federal income tax slabs
In the US, every individual’s income is divided into the same slabs, and the higher slabs attract higher tax rates. So, a person bringing in $1 million a year and a person bringing in $50,000 a year will both pay the same 10% tax on their first $11,000, which is the first income tax slab. Let us look at the tax rates for all slabs.
Let us understand the US federal income tax slabs using an illustration of the tax liabilities of a person earning $1 million a year and a person earning $50,000 a year.
Capital gains tax is also an important tax to keep in mind for individuals. In the US, long-term capital gains are taxed at a maximum of 15% while short-term capital gains are treated as ordinary income and may attract a tax rate as high as 37%.
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Corporate tax slabs
Since 2018, the federal corporate tax rate has been kept constant at 21%. This was one of the outcomes of the Tax Cuts and Jobs Act of 2017. Before this, the corporate tax rate was 35%. This tax cut was meant to stimulate economic growth in the US and make American companies more competitive on a global level. The low individual tax rates are also an outcome of the Tax Cuts and Jobs Act of 2017.
From 2011 to 2017, in the post-Great Financial Crisis period, the US economy exhibited stability, however, its real GDP growth never crossed 3%. Hence, there were calls for economic reforms.
Although many provisions of the Tax Cuts and Jobs Act of 2017 like the low individual income tax rates are set to expire, the changes to the federal corporate tax rate are permanent.
Here are some of the key sections of the Internal Revenue Code (IRC) for companies in the US:
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In the US, individuals pay federal income taxes as per tax slabs while companies must pay a flat tax rate of 21%. Among the provisions of the Tax Cuts and Jobs Act of 2017, the corporate tax rate reduction to 21% is permanent while the low individual income tax rates will expire in 2026.
However, companies still need to be aware of IRC Sections like 409A , 174, and 179 to maximize their tax savings and ensure tax compliance. On the other hand, individuals must pay attention to capital gains tax and try to qualify for long-term capital gains tax treatment.
If you need assistance in tax planning, consider reaching out to Eqvista’s accredited tax experts . We specialize in tax planning for corporations and stock-based compensations.
SEBI Registered Research Analyst | Long-Term Investment Strategist | Passionate About Analysing the Future of the Indian Economy
3 周The clarity around income tax slabs, capital gains tax distinctions, and the stability of corporate tax rates post-Tax Cuts and Jobs Act offers valuable insights for effective financial planning. It's essential for both individuals and businesses to remain proactive in understanding these regulations, especially with the impending expiration of lower individual tax rates in 2026. The emphasis on compliance with key sections of the Internal Revenue Code is particularly pertinent for corporate tax strategies. For tailored guidance, collaborating with tax experts like Eqvista is a smart move to navigate these complexities efficiently.