dsmWealth: October 3, 2024

A few points to consider in the run-up to tax season
BY STEVE DINNEN

It’s almost tax time again. Time to start getting your papers in order to pay your state and federal income taxes. Thankfully, not much has changed since last year.

" ‘New’ is pretty limited,” said Joe Kristan, a partner at Eide Bailly. Even so, he pointed out a few topics that are worth noting.

A big chunk of the 2017 tax law expires after 2025. This is especially important in the area of estate planning.

A stalemate continues about tax deductions for business costs, including research and development.

The current political campaigns disagree about several issues, including tariffs.

A controversy continues about tax credits for employee retention.

The IRS is beginning to spend its Inflation Reduction Act funding.

There are workarounds for the cap on state and local tax (SALT) deductions.

About the changes to estate taxes: It’s a very big deal if the current exemption of $14 million drops to $7 million. “You’ll go from easy tax-free to not easy tax-free,” Kristan said.

Now is the time to start exploring tax-limiting tools such as spousal lifetime access trusts (SLATs) or family limited partnerships because — who knows? — waiting even a year could be too late. Estate planning is especially important for wealthy individuals and their families.

Some other points to consider:

The standard federal deduction for 2024 married people filing jointly rises to $29,200, a bump of $1,500. For seniors over 65, there are bump-ups of $1,950 for singles and $1,550 for married couples.

Retirement plans, such as 401(k)s and 403(b)s, allow slightly higher set-asides this year. Limits to IRA contributions also rise.

As for capital gains, none are levied if your taxable income is under $47,025. A 15% rate applies for taxable incomes greater than $518,000, after which a 20% tax applies.

Brackets have changed. A $46,000 income earned you a 22% rate in 2023. This year, that same income falls into the the 12% rate. By the way, rates start at 10% for incomes greater than $23,200 for married filing jointly and top out at 37% for incomes over $731,200.

Iowa now has just three income-tax brackets
BY STEVE DINNEN

Iowa has accelerated its march toward a flat income tax rate. In the meantime, the state has lowered rates it’s charging with its current graduated tax system.

For 2024, there will be just three brackets, charging rates of 4.4%, 4.82% or 5.7%, depending on how much income you make. That is simpler than the situation in 2022, when we had nine brackets ranging from 0.33% to 8.53%. That latter number gave Iowa the sixth-highest state tax rate in the nation, which Gov. Kim Reynolds took note of when she announced plans to ditch the brackets and move the state to a flat tax regimen.

The move toward a flat tax was originally slated for 2026, at 3.9%. Since legislation earlier this year switched gears a tad, Iowans now will face a flat rate of 3.8% in 2025 and beyond.

Iowa will join 12 other states that currently charge a flat rate, ranging from a high of 5.8% in Idaho to 2.5% in Arizona. And then we have nine states with no tax at all, including neighboring South Dakota.

As recently as 2023, Iowa had the nation’s 10th-highest tax burden (9.15%), which is a combination of income, sales and property taxes. Moving toward a flat tax will certainly bump the state down that list.

50 years ago, women won equal access to credit
BY ELAINE SILVESTRINI FOR KIPLINGER

As recently as 1974, banks were legally allowed to deny women credit or charge them higher interest if they failed to get a male co-signer.

But that year, on Oct. 28, President Gerald Ford signed into law the Fair Credit Opportunity Act, giving women the right to open a credit card in their own name.

The act came after women complained they were denied credit for reasons other than income or credit history, according to the New York Times account of the Senate passage.

Married women were denied credit regardless of their income, and single women were denied loans or were given smaller amounts than single men with identical financial backgrounds, the newspaper reported.

According to Smithsonian Magazine, until then, “many banks required single, divorced or widowed women to bring a man along with them to co-sign for a credit card, and some discounted the wages of women by as much as 50% when calculating their credit card limits.”

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Rent or buy? How falling mortgage rates change the math
BY VERONICA DAGHER FOR THE WALL STREET JOURNAL

The millions of American renters longing to buy a home are doing the math again after the Fed’s rate cut. It still doesn’t add up.

Though average rates on a 30-year mortgage dropped to just over 6% this week, high home prices keep the monthly payments out of reach. Rents are high too, but the gap between the two is still often hundreds of dollars apart on average.

Homebuyers would need 30-year fixed mortgages to fall to about 5.25% before the monthly payment on a $419,000 home would close in on the average U.S. rent of $1,840, said Nick Villa, an economist at Moody’s.

With rates at this level, many renters remain either priced out of the dream of homeownership or unmotivated to take on the risk of such a large purchase. Homeowners are thus less willing to put their houses on the market over worries the houses won’t go for top dollar. Many of these owners also still have an enviable mortgage rate at 3% or lower.

This combined shortage of buyers and sellers has sapped the market’s usual frenzy, leading home sales to decline in August even as mortgage rates fell.

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