Enjoying Ourselves at Mexico Beach, FL

Greetings taxophiles and taxophobes alike! After last year’s Free Money! debacle, I swore to myself that I wouldn’t drag my feet on the 2024 Free Money! post. So, here it is! (I didn’t’ post last year’s Free Money! post until July! Does anyone even read my blog anymore?)

Before we hit our FIRE number, we were Travel Rewards Millionaires. Here are the referral links for the credit cards we currently use:
“Flexible” Rewards	Chase Ultimate Rewards * Capital One Reward Miles
Hotel Points & Airline Miles	IHG One Rewards * British Airways * Southwest Airlines
Credit Tradelines & Referrals	Capital One * Savor One * Discover ($100 bonus)
Business Cards	Hilton Honors * Capital One Spark * Southwest Airlines

Good-Bye Child Tax Credit

Last year’s 2023 FM! left me a little bummed out since our son no longer qualified for the child tax deduction. Watching $2k in tax obligation vanish every year was a beautiful sight…those were the days! From here on out we’ll never enjoy the benefits of the child tax credit ☹. Nevertheless, we decided to let our son live with us until he graduates from high school in May of 2024.

Helping Out with Disaster Relief after Hurricane Idalia

While our only FM! source for 2024 will be the standard deduction, there is some good news. The 2024 standard deduction will increase to $29,200. Before we go any further with this captivating tax talk, let answer a basic question:

What is Free Money! Exactly?

Free Money! refers to the amount of income:

you can earn before you owe any federal income tax.

FM! represents your 0% tax rate for your federal income taxes (not your state or FICA tax rate). The FM! calculation for most people consists of two components: 1.) the standard deduction and 2.) the child tax credit. (However, keep in mind that once your adorable child tax credit turns 17, that credit is gone forever.)

Free Money! Components Recap

The standard deduction depends on the status of the taxpayer:

• Single * $14,600
• Married Filing Separately * $14,600
• Head of Household * $21,900
• Married Filing Jointly * $29,200

The child tax credit provides a tax credit of:

• $2,000 per child (ages 0-16)
• the income value of the credit depends the taxpayer’s tax bracket (e.g., 0%, 10%, 12%, etc.)

Southwest Rapid Rewards			Southwest Rapid Rewards Business
Earning a Southwest Companion Pass Is Easier with Two Cards! (affiliate links)

Before I go any further, be forewarned…

Newsflash: I’m Not a Tax Expert!

Okay, here’s your chance to turn back and retreat to safety. Prepare yourself for a disturbing truth– I am not a tax expert. In fact, taxes confuse me just as much as the general public. This blog post is not personalized tax advice because I’m NOT a CPA, accountant, or tax preparer. Instead, I’m just a regular guy trying to keep my tax bill in check by understanding how my income affects my tax rate.

2024 vs 2023

Since the MFJ standard deduction is going up by $1,500, there is a little good news for 2024. Here is how our 2024 FM! amount compares to last year’s amount:

Free Money! Comparison: 2024 vs. 2023		2024 FM!	2023 FM!
MFJ Standard Deduction		$29,200	$27,700
0 Child-Tax Credit		$0	$0
Total Free Money Amounts		$29,200	$27,700
A 2024 Free Money! Increase of $1,500!

Alright, things could be worse, right? After all $1,500 more a years means we’ll have an extra $125 a month to play with.

Flexible Points with Ultimate Rewards			British Airways Avios Miles
Pro Tip: Use Travel Rewards to Fly for Pennies on the Dollar! (affiliate links)

Thanks to the Great Debasement over the last few years, we’ll probably need more than $29,200 to live on in 2024. So, now it’s up to us to decide how much we want to pay in federal income taxes. (Yes, we choose the amount; it is not chosen for us!)

Here are our 2024 income options based on federal income taxes of $1k, $2k, and $3k:

2024 Income with Tax Bill of $1k, $2k, & $3k		$1k Tax Bill	$2k Tax Bill	$3k Tax Bill
2024 Free Money!		$29,200	$29,200	$29,200
Additional Income @ 10%		$10,000	$20,000	$23,200
Remaining 10% Money		$13,200	$3,200	$0
12% Money		$0	$0	$5,667
Total Income		$39,200	$49,200	$58,067
– Tax Owed		-$1,000	-$2,000	-$3,000
Total After-tax Income		$38,200	$47,200	$55,067
Effective Tax Rate		2.55%	4.07%	5.17%
Remember, YOU Decide How Much You’ll Pay in Taxes!

Would you take a look at those effective tax rates! The lowest rate is 2.55% with net total income of $38,200 while the highest rate is 5.17% with a net total income of $58,067. Those are decent amounts of income (yes, I’m working-class scum!) with very small tax bites.

Eternal Confuse Note: Because the 10% tax bracket for MFJ is $23,000 for 2024, the calculations are pretty easy.  For the $1k example, a tax bill of $1,000 results in $10,000 of additional income ($1,000/.10%).  For the $2k example, a tax bill of $2,000 results in $20,000 of additional income ($2,000/.10%).  Finally, the tax bill of $3k yields an additional $28,867 of income ($2,320/.10%) + ($680/.12%). (If this sexy tax math confuses you, don’t feel bad because taxes are confusing to most people.)

Here’s what our 2024 income options look like after taxes:

2024 Income Options After Taxes	Tax Bill of $0 ($29,200)	Tax Bill of $1k ($38,200)	Tax Bill of $2k ($47,200)	Tax Bill of $3k ($55,067)
Month	$2,433	$3,183	$3,933	$4,589
Week	$562	$735	$908	$1,059
Day	$80	$105	$129	$151
More Than $2.4k a Month No Matter How You Slice It!

Depending on where they live, most frugal people that I know could make due the income amounts above.

Final Thoughts

Since we now have our 2024 FM! tax numbers, we are ready to make informed tax decision for the upcoming tax year. As always, I have included tax tables to help my readers as they devise their own tax plan; see below.

Yours in Tax Preparedness,

Gerry

Useful Resources: Companies and Services that We Actually Use (Lots of affiliate links here!)
Investing:  Vanguard, Fidelity, Schwab	Banking:  USAA, Schwab, Chime. Alliant, Navy Federal
Travel Rewards:  Credit Cards, Airbnb, Uber	Credit Tradelines:  Tradeline Supply Company
Net Worth Tracking:   Personal Capital ($100K+), $20 bonus	Health Savings Account:  Fidelity
Mexican Cell Phone & Credit Card:  ATT Mexico, DolarApp	Alt-Ed:  Study.Com, Sophia Learning, InstantCert
Credit Sesame, Credit Karma, Annual Credit Report	Blogs, Books, and Podcasts
Affiliate Link Disclaimer, Privacy Policy, and Terms of Use   This website is powered by Site Ground.

If you don’t have any children and file “Single, MFS, MFJ,” here’s your table:

2024 Free Money for:	Single & MFS		MFJ
Standard Deduction	$14,600		$29,200
Credits	$0		$0
Total Free Money	$14,600		$29,200
Remaining 10% Bracket	$11,600		$23,200
Free Money + 10%	$26,200		$52,400
Tax Owed	$1,160		$2,320
Effective Tax Rate	4.43%		4.43%
Effective tax rate of 4.43% with the entire 12% bracket remaining!
Remaining 12% Bracket	$35,550		$71,100
Free Money + 10% + 12% Brackets	$61,750		$123,500
Tax Owed	$5,426		$10,852
Effective Tax Rate	8.79%		8.79%
Effective tax rate of 8.79% at the end of the 12% tax bracket.

If you have children and file “MFJ,” here’s your table:

MFJ + Children:	+ 1	+ 2	+ 3	+ 4	+ 5
Standard Deduction	$29,200	$29,200	$29,200	$29,200	$29,200
Credits	$20,000	$37,200	$53,867	$70,533	$87,200
Total Free Money	$49,200	$66,400	$83,067	$99,733	$116,400
Remaining 10% Bracket	$3,200	$0	$0	$0	$0
Free Money + 10%	$52,400	$66,400	$83,067	$99,733	$116,400
Tax Owed	$320	$0	$0	$0	$0
Effective Tax Rate	0.61%	0%	0%	0%	0%
Effective tax rate of 0% to 0.61% with some room available in the 12% tax bracket.
Remaining 12% Bracket	$71,100	$57,100	$40,433	$23,767	$7,100
Free Money + 10% + 12% Brackets	$123,500	$123,500	$123,500	$123,500	$123,500
Tax Owed	$8,852	$6,852	$4,852	$2,852	$852
Effective Tax Rate	7.17%	5.55%	3.93%	2.31%	0.69%
Effective tax rates of 0.69% to 7.17% for six-figure income!

If you file “Head of Household,” here’s your table:

HH + Children:	+ 1	+ 2	+ 3	+ 4	+ 5
Standard Deduction	$21,900	$21,900	$21,900	$21,900	$21,900
Credits	$19,425	$36,133	$52,758	$66,550	$75,641
Total Free Money	$41,325	$58,033	$74,658	$88,450	$97,541
Remaining 10% Bracket	Child tax credit of $2k per child covers the entire 10% bracket!
Free Money + 10%	$41,325	$58,033	$74,658	$88,450	$97,541
Tax Owed	$0	$0	$0	$0	$0
Effective Tax Rate	0%	0%	0%	0%	0%
Effective tax rate of 0% with some room available in the 12% tax bracket.
Remaining 12% Bracket	$43,675	$26,967	$10,342	$0	$0
Free Money + 10% + 12% Brackets	$85,000	$85,000	$85,000	$88,450	$97,541
Tax Owed	$5,241	$3,236	$1,241	$0	$0
Effective Tax Rate	6.17%	3.81%	1.46%	0%	0%
Effective tax rate of 0% to 6.17% for $85k (or more) of income!

If you have children and file “Married Filing Separately,” here’s your table:

MFS + Children:	+ 1	+ 2	+ 3	+ 4	+ 5
Standard Deduction	$14,600	$14,600	$14,600	$14,600	$14,600
Credits	$18,600	$35,267	$49,759	$58,850	$67,941
Total Free Money	$33,200	$49,867	$64,359	$73,450	$82,541
Remaining 10% Bracket	Child Tax Credit of $2k per child covers the entire 10% bracket!
Free Money + 10%	$33,200	$49,867	$64,359	$73,450	$82,451
Tax Owed	$0	$0	$0	$0	$0
Effective Tax Rate	0%	0%	0%	0%	0%
Effective tax rate of 0% with some room available in the 12% tax bracket.
Remaining 12% Bracket	$13,950	$0	$0	$0	$0
Free Money + 10% + 12% Brackets	$47,150	$49,867	$64,359	$73,450	$82,451
Tax Owed	$1,674	$0	$0	$0	$0
Effective Tax Rate	3.55%	0%	0%	0%	0%
Effective tax rate of 0% to 3.55% for $47k (or more) of income!