Tax Changes in 2024: How They’ll Impact Your Returns
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As we step into 2024, the taxation landscape undergoes a significant transformation, bringing with it a new set of challenges and opportunities for taxpayers. This year marks the implementation of pivotal tax changes debated and finalized in the previous years. These adjustments are not just mere tweaks but substantial shifts that aim to modernize the tax system, making it more equitable and efficient in a rapidly evolving economic environment.
These changes reflect a comprehensive overhaul from revised tax brackets and altered deductions to new tax credits and enhanced digital reporting mechanisms. They are designed to address contemporary economic realities, such as the increasing significance of digital economies, the need for environmental sustainability incentives, and the ongoing quest for socio-economic equity.
This article serves as your guide to understanding these changes. Knowing what to expect is crucial for effective financial planning and compliance, Whether you're a taxpayer, a small business owner, or a corporate entity. We will delve into the specifics of each major change, analyze their potential impacts on different population segments, and provide expert insights to navigate this new tax era efficiently.
Stay tuned as we unfold the layers of the 2024 tax changes, helping you to comprehend and strategically adapt to these new fiscal norms.
Related: Money Moves to Make Before April 15
In this article
Income brackets have increased
Tax brackets generally increase yearly to keep up with the pace of inflation. If you got a raise in 2023, you may have been bumped to a higher tax bracket. Alternatively, even if your income stayed the same, you may be in a lower tax bracket than the previous year. Here are the inflation adjustments for taxable income brackets for 2023 and 2024.
2023 tax brackets
Tax rate | Single filers | Married filing jointly |
10% | $0 - $11,000 | $0 - $22,000 |
12% | $11,001 - $44,725 | $22,001 - $89,450 |
22% | $44,726 - $95,375 | $89,451 - $190,750 |
24% | $95,376 - $182,1000 | $190,751 - $364,200 |
32% | $182,101 - $231,250 | $364,201 - $462,500 |
35% | $231,251 - $578,125 | $462,501 - $693,750 |
37% | $578,126 or more | $693,751 or more |
You can view the complete IRS income tax rates schedule for other filing statuses for 2023 (such as heads of household) here.
2024 tax brackets
Tax Rate | Single filers | Married filing jointly |
10% | $0 - $11,600 | $0 - $23,200 |
12% | $11,601 - $47,150 | $23,201 - $94,300 |
22% | $47,151 - $100,525 | $94,301 - $201,050 |
24% | $100,526 - $191,950 | $201,051 - $383,900 |
32% | $191,951 - $243,725 | $383,901 - $487,450 |
35% | $243,726 - $609,350 | $487,451 - $731,200 |
37% | $609,351 or more | $731,201 or more |
You can view the complete IRS income tax rates schedule for other filing statuses for 2024 (such as heads of household) here.
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Top changes in deductions and credits for 2023
What are tax deductions?
Tax deductions can help you save money on your taxes. They work by lowering your taxable income, which, in turn, reduces your tax bill. If you qualify for a tax deduction, you’ll subtract the amount you’re eligible for from your income to lower your taxable income.
What are tax credits?
Tax credits are often confused with tax deductions. While both can save you money on your taxes, tax credits instead deduct dollars from your tax bill. Some are refundable, which means if you owe on your taxes and credit puts you in the positive, you’ll actually receive a check back from the government.
For example, if you qualify for a $500 refundable tax credit and currently owe $200, you’d receive a $300 check. If the credit you qualify for is not refundable, you’d simply zero out your tax bill.
Tax credits often lower your tax bills more than tax deductions.
How to claim tax deductions
To claim tax deductions, you’ll first need to decide if you want to claim standard or itemized deductions. A standard deduction will deduct a flat fee from your income according to your filing status. An itemized deduction allows you to claim any available deductions you qualify for. If you’re not itemizing your taxes, chances are you’re claiming the standard deduction. This is the deduction most taxpayers claim, and it tends to increase slightly each year.
For 2023, the standard deduction for single filers is $13,850, and for married couples filing jointly, it’s $27,700. The standard deduction for next year’s tax return (filing year 2023) will be $14,600 for single filers and $29,200 for those married and filing jointly.
Which deduction is better? That all depends on the number of expenses you have available to claim. While the standard deduction has increased over the years (particularly since the 2017 Tax Cuts and Jobs Act), if you think itemizing will get you more money, you’ll need to calculate your expenses and provide proof to certify you’re entitled to these deductions. You may need to fill out additional tax forms.
If you’re unsure which deduction is right for you, I recommend talking to an accountant or tax professional.
Related: Key Personal Finance Dates for 2024
Types of tax deductions to be aware of when filing 2023 taxes
Here are some of the most important deductions to be aware of when filing your 2023 taxes.
1099-K reporting
In November, the IRS announced a postponement of a new reporting requirement for 2023, originally intended for business transactions made through digital payment platforms like PayPal and Venmo.
Before this postponement, the rule was set such that any business transaction over $600 would necessitate issuing Form 1099-K for IRS reporting. This form is critical for documenting business payments for tax purposes.
The year 2023 has been designated as a "transition year" by the IRS, during which the previous threshold will remain in effect. This means that the reporting requirement will be triggered only if there are more than 200 transactions with a total exceeding $20,000.
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Energy tax credit
According to the IRS, individuals who bought a vehicle in 2023 or undertook energy-efficient upgrades to their homes may be eligible for tax deductions.
For those who invested in a clean vehicle, the tax credit is capped at $7,500. Additionally, implementing qualified environmentally-friendly improvements in homes could result in further tax benefits amounting to several thousand dollars.
Earned income tax credit
Number of children (or claimed relatives | Maximum AGI (must file as single, head of household or widowed | Maximum AGI (must file as married or jointly) | Maximum EITC credit you can claim |
0 | $17,640 | $24,210 | $600 |
1 | $46,560 | $53,120 | $3,995 |
2 | $52,918 | $59,478 | $6,604 |
3 or more | $56,838 | $63,698 | $7,430 |
The income requirements and maximum EITC credit amounts you can claim for 2023 (for taxes filed in 2024) are the same.
Child and dependent care credit
For this year’s tax return, parents with one child can claim up to 35% of eligible expenses, for up to a maximum of $3,000, bringing the total credit to $1,050. Parents with two or more children can claim up to 35% of eligible expenses for up to a maximum of $6,00, bringing the maximum credit to $2,100.
Student loan interest deduction
Student loans began acruing interest again on September 1, 2023, and with that returned federal tax deductions on interest paid. In 2023, you can deduction up to $2,500 on interest.
Crypto transactions
If you dabbled in Bitcoin or another digital currency in 2023, you must report any profits, losses, and other activity on your taxes. As the federal government cracks down on crypto regulations, you’ll need to report any earnings or losses you made on cryptocurrency in the past year.
Holding cryptocurrency for over a year makes you eligible for long-term capital gains tax rates, which can be 0%, 15%, or 20%. In the year 2023, individuals filing taxes as single can have a taxable income of up to $44,625 and still qualify for the 0% rate on long-term capital gains. This threshold doubles to $89,250 for married couples filing jointly, allowing them to also benefit from the 0% rate on their long-term capital gains.
Related: When Can I Expect My Tax Refund?
Additional business deductions
If you are self-employed or own your own business, there are many business deductions you can take advantage of, including:
- Capital expenses
- Costs of goods sold
- Travel
- Rent
- Insurance
- Employee salaries
- Retirement plans
- Interest charged
FAQs
When will the IRS start accepting tax returns for 2023?
The IRS started accepting returns in January 2024. Your tax return is due on April 15, 2024r. If you need more time, you can file an extension by the same date, but any taxes owed are still due in full on April 15, 2023.
Will tax refunds be delayed in 2024?
While tax season 2024 seems to be running smoother, filing online is the best way to ensure you receive your money faster.
When are my 2024 taxes due?
The due date for 2023 taxes is currently April 15th, 2024. If you file an extension, your tax return is due on October 15, 2024.
How do the recent tax changes for the tax year affect adjusted gross income and deductions?
The recent tax changes may adjust the calculation of adjusted gross income (AGI) by introducing new deductible expenses or altering existing ones. These changes can affect the amount of your income that is subject to federal income tax, impacting deductions for both individual and joint filers.
What are the new rules for tax exemptions and qualifying deductions in the latest tax legislation?
The latest tax legislation revises the criteria for tax exemptions and qualifying deductions, potentially changing what expenses are deductible and how these deductions impact your taxable income. It's important to review how these adjustments could influence your income tax return.
How will joint filers be impacted by the updated federal income tax regulations?
Joint filers may see changes in their tax liability due to adjustments in tax brackets, standard deductions, and specific deductions and credits designed for joint filers. These updates aim to reflect changes in the tax code that could benefit or affect joint filers differently than single filers.
Are there any changes to the taxation of retirement accounts as ordinary income?
Yes, the new tax changes may alter how distributions from retirement accounts are taxed as ordinary income. This includes possible modifications to the tax rates applied to distributions and new provisions for tax relief, affecting individuals' financial planning for retirement.
What tax relief measures have been introduced for the latest tax year?
The latest tax legislation includes tax relief measures aimed at reducing the tax burden on certain taxpayers. These measures may involve adjustments to the standard deduction, tax credits for specific groups (like joint filers or those with retirement accounts), and provisions to support taxpayers facing unusual financial situations last year.
The bottom line
As we navigate through 2024, staying informed about the latest tax changes is crucial. These adjustments, ranging from new thresholds for digital business transactions to tax breaks for clean vehicles and energy-efficient home improvements, can significantly impact your financial planning and tax obligations. Whether you're an individual taxpayer or a business owner, understanding these evolving tax laws is key to maximizing your benefits and ensuring compliance. Therefore, it's advisable to keep abreast of these developments and, if necessary, consult with a tax professional to make the most of the opportunities these changes bring, while adeptly navigating the complexities of the current tax landscape. Remember, being proactive and informed is your best strategy in adapting to the ever-changing world of taxation.
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Writer
Courtney Johnston is a freelance writer, specializing in finance, travel, and health. She has written for The Chicago Tribune, Benzinga, BestReviews, Mashvisor, Fundera, MoneyGeek, and The Culture Trip. She also teaches writing instruction at the University of Indianapolis. Courtney currently resides in Indianapolis.
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