As we step into 2024, it’s crucial for taxpayers to stay informed about the latest changes to federal tax laws. The IRS has introduced several updates that could impact how much you owe or how much you get back in your tax return. Understanding these changes is key to maximizing your refund or minimizing your liability. Here are the most important updates to keep in mind for the 2024 tax season:
1. Higher Standard Deduction Amounts
One of the most significant changes for 2024 is an increase in the standard deduction. For single filers, the standard deduction rises to $14,600, up from $13,850 in 2023. Married couples filing jointly will see their deduction increase to $29,200, compared to $27,700 last year. This adjustment, designed to keep up with inflation, means more taxpayers will find it beneficial to take the standard deduction rather than itemizing.
2. Adjusted Income Tax Brackets
Income tax brackets for 2024 have been adjusted for inflation. While the tax rates remain the same (10%, 12%, 22%, 24%, 32%, 35%, and 37%), the income thresholds for each bracket have shifted. For example, the 22% tax rate now applies to income between $45,850 and $95,375 for single filers, compared to $44,725 to $95,375 in 2023. These changes may reduce the overall tax burden for many filers.
3. Child Tax Credit Updates
The Child Tax Credit remains a valuable tool for families, but the enhanced credit introduced during the pandemic has not been extended. For 2024, the credit is $2,000 per qualifying child under age 17, with a phase-out starting at $200,000 for single filers and $400,000 for married couples filing jointly. If you’re a parent, ensure you’re maximizing this credit to reduce your tax liability.
4. Earned Income Tax Credit (EITC) Adjustments
The Earned Income Tax Credit, aimed at low- to moderate-income workers, has also seen an increase in income limits. For 2024, the maximum credit is $7,430 for taxpayers with three or more qualifying children. The income threshold to qualify has been adjusted, so be sure to check if you’re eligible this year.
5. Retirement Contribution Limits
Saving for retirement just got a little more rewarding. The IRS has raised contribution limits for retirement accounts like 401(k)s and IRAs. For 2024, you can contribute up to $23,000 to a 401(k), up from $22,500 in 2023. The catch-up contribution for those aged 50 and older increases to $7,500. For traditional and Roth IRAs, the contribution limit rises to $7,000, up from $6,500. These increases provide an excellent opportunity to reduce your taxable income while planning for the future.
6. Clean Energy Tax Credits
If you’ve made energy-efficient upgrades to your home, such as installing solar panels or energy-efficient windows, you may qualify for expanded tax credits. The Residential Clean Energy Credit remains at 30% of the cost of qualifying improvements. Additionally, credits for electric vehicles (EVs) have been extended, with certain income and vehicle price limits applying. These credits can provide significant savings while encouraging environmentally friendly choices.
7. Education Tax Benefits
For those paying student loans or saving for education, the IRS has maintained tax benefits like the American Opportunity Tax Credit (AOTC) and Lifetime Learning Credit (LLC). However, income thresholds for these credits have been adjusted, so make sure to check if you’re still eligible to claim them.
8. Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs)
Contributions to HSAs and FSAs have increased for 2024. The maximum HSA contribution is $4,150 for individuals and $8,300 for families. FSAs now allow up to $3,200 in contributions, up from $3,050 in 2023. These accounts provide a tax-advantaged way to save for medical expenses, so consider maximizing your contributions.
2024 TAX TIPS FROM WISE MULTI-SERVICES
Tips to Maximize Your Tax Return in 2024
- Organize Your Documents Early: Gather W-2s, 1099s, and other relevant forms to avoid last-minute stress.
- Leverage Tax Credits and Deductions: Explore all applicable credits and deductions, such as education credits, retirement savings, and energy-efficient home upgrades.
- Contribute to Retirement Accounts: Max out contributions to reduce your taxable income and secure long-term financial benefits.
- Consult a Tax Professional: Tax laws can be complex, and a professional can help you navigate changes and optimize your return.
By staying informed and proactive, you can make the most of the 2024 tax laws and potentially increase your tax refund. Take advantage of the opportunities these changes offer and ensure your financial decisions align with the latest IRS updates.
