New Laws, Bigger Deductions: Changes For The 2024 Tax Season

5 min read

New Laws, Bigger Deductions: Changes For The 2024 Tax Season

It's never too early to start getting a handle on next year's taxes, folks. Brace yourselves, because the 2024 tax season will be seeing some significant changes. We're talking increases in standard deduction amounts, adjusted income tax brackets, changes to reporting transactions involving payment apps, and new rules for business deductions.

Higher Standard Deduction Amounts

The Internal Revenue Service (IRS) has upped the standard deduction amounts for the 2023 tax returns, which will be filed in 2024! Single filers or heads of household can look forward to a standard deduction of $13,850. If you're married filing jointly or a qualifying widow(er), that amount goes up to $27,700.

But wait, are you 65 and older or blind? If so, you've got an additional deduction coming your way! Single filers or heads of households in this category will receive $1,850, while married filers or qualifying widow(er)s can claim an extra $1,500.

Adjusted Income Tax Brackets

Time to say goodbye to the good old 2022 tax brackets. Adjustments have been made, and here's how it goes: if your taxable income is up to $44,000, you'll be part of the 12% tax bracket. For those earning over $44,000, the rate jumps to 22%.

Changes to Reporting Transactions Involving Payment Apps

Get ready, this one's a game-changer. For the tax year 2023, transactions amounting to $600 or more involving payment apps will have to be reported. However, come 2024, that reporting threshold leaps to a hefty $5,000.

Updates to Business Deductions

Heads up, entrepreneurs! Changes are coming to business deductions too. You'll be able to claim 50% of the cost as a deduction for business-related meals and beverages. For standard mileage rates? Well, 65.5 cents per mile driven can be deducted.

But there's more: Bonus depreciation is subject to change too. In 2023, expect an 80% depreciation rate. However, this rate decreases annually – down to 60% in 2024, then 40% in 2025, 20% in 2026, and, finally, no bonus depreciation by 2027.

Overall, these changes signal some important things to keep in mind as you gear up for the 2024 tax season. Start planning now to make the most of these shifts.

The Importance of Strategic Planning

With the landscape of tax laws constantly evolving, one fact remains clear: being strategic with tax planning is more crucial than ever. Taxpayers would be wise to consider not just the immediate benefits of deductions and credits but also the long-term implications of their financial decisions. Seeking the expertise of a qualified tax professional could be a significant advantage, ensuring that every new opportunity for tax savings is expertly leveraged and pitfalls are avoided. As we approach the 2024 tax season, remember that preparation today can lead to substantial rewards tomorrow.

Navigating New Retirement Account Limits

As if the updates above weren't enough to keep us on our toes, there's also an adjustment to retirement account contribution limits. The IRS has announced that for the 2023 tax year, taxpayers can contribute up to $20,500 to their 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan—an increase from the previous limit. Furthermore, Individual Retirement Account (IRA) contribution limits have grown as well, allowing individuals to set aside $6,500, up from $6,000.

Remember, making the maximum contribution not only bolsters your retirement savings but also reduces your taxable income, potentially placing you in a lower tax bracket and reducing your tax liability. This kind of proactive planning epitomizes the importance of staying aware of the changing tax environment and adjusting your strategies accordingly.

Catching Up with Health Savings Account (HSA) Adjustments

Not to be overshadowed by retirement account changes, Health Savings Accounts (HSAs) have experienced some adjustments as well. For those with high-deductible health plans, the maximum contributions to an HSA have seen an uptick. Individuals can now contribute $3,850, while families can set aside up to $7,750 for the year 2023. These contributions are tax-deductible, thus lowering your taxable income. What's more, the funds in your HSA grow tax-free and as long as you use them for qualified medical expenses, they remain untaxed. The triple tax advantage of an HSA—deductible contributions, tax-free growth, and tax-free withdrawals for medical expenses—makes it an essential tool in your tax planning arsenal.

Capitalizing on the Child Tax Credit Adjustments

Parents, don't overlook the adjustments made to the Child Tax Credit (CTC) for the 2023 tax year. While the enhanced credits available in 2021 are no longer in play, the CTC still provides a substantial benefit for families. For each qualifying child under the age of 17, families can claim a credit of $2,000. Up to $1,400 of this credit is refundable, which means it could reduce your tax bill below zero, potentially resulting in a refund. Additionally, the earned income requirement has reverted to $2,500, and the phaseout for the credit starts at modified adjusted gross income (MAGI) of $200,000 for single filers and $400,000 for married couples filing jointly. It's important to examine how the CTC can impact your tax situation and explore the best ways to claim it to optimize your tax outcomes for the year ahead.

Embracing the Energy Efficient Home Credit Revamp

2023 has also brought revitalizing changes to the Energy Efficient Home Credit, encouraging homeowners to make eco-friendly improvements. The credit, which has been expanded and renamed the Energy Efficient Home Improvement Credit, allows for a 30% credit on the cost of qualified energy improvements, such as solar panels, heat pumps, and wind turbines, up to a maximum of $1,200 each year. Notably, this includes a separate $600 limit on windows and skylights, and a $500 cap for doors. Additionally, there is a lifetime limit of $3,200 for any energy-efficient home improvements. Making these sustainable upgrades not only aids in reducing your carbon footprint but can now also yield significant tax savings. With climate change as a pressing global issue, such incentives underline the government's commitment to reward environmentally conscious decisions.

Adapting to the New Work Opportunity Tax Credit Provisions

Businesses that prioritize diversity and inclusivity in their hiring practices should take note of the recent changes to the Work Opportunity Tax Credit (WOTC). This program encourages employers to hire individuals from certain groups who have consistently faced significant barriers to employment. The WOTC has been extended through 2025, allowing eligible businesses to benefit from tax credits when hiring qualified veterans, long-term unemployment recipients, and other designated categories. The credit amounts can be substantial, ranging up to $9,600 per eligible employee, depending on the target group. Proactive adaptation of your hiring strategies to include WOTC-eligible individuals can not only contribute to the social imperative of empowering the workforce but can also enhance your company's financial performance through these valuable tax credits.

Understanding the Revised Standard Deduction

The venerable standard deduction—often the taxpayer's first line of defense against high taxable income—has been revised upwards to keep pace with inflation. For the 2023 tax year, the standard deduction for single taxpayers and married individuals filing separately is now $13,850—a noticeable increase from the prior year. Married couples filing jointly will see an increase to $27,700, while heads of households are set at $20,800. These enhanced deductions can reduce your taxable income significantly, underscoring the need to evaluate whether to take the standard deduction or itemize deductions, depending on which approach is more beneficial for your specific financial situation.

Navigating Changes in Estate and Gift Tax Exemptions

The realm of estate planning receives its own set of updates to consider in 2023, as the IRS adjusts exemption amounts for estate and gift taxes to reflect inflationary pressures. For individuals looking to manage their estate's future, the federal estate tax exemption has risen to $12.92 million, up from the previous $12.06 million. This increase means that individuals can leave or gift more to their heirs without triggering federal estate or gift taxes. Similarly, the annual gift exclusion amount—the limit on tax-free gifts you can give to any one person in a given year without tapping into the lifetime exemption—has also seen a bump to $17,000. To maximize the benefits of these changes, it is crucial to adapt your estate planning strategies, including timed asset transfers and structured gifting, to optimize tax efficiency and wealth preservation for future generations.

Leveraging Adjustments in Retirement Contribution Limits

As the landscape of retirement savings evolves, those planning for the future will find an opportunity to boost their nest eggs through increased retirement contribution limits in 2023. Notably, the limit for 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan has been elevated to $22,500. In addition, the catch-up contribution limit for individuals aged 50 and over has climbed to $7,500, offering an additional pathway for mature savers to fortify their retirement reserves. With these enhancements, it is more advantageous than ever to re-evaluate your retirement planning goals and contribution strategies to ensure maximum benefit and preparedness for the golden years.

Optimizing Tax Strategy with Medical Expense Deductions

As healthcare costs continue to rise, so does the importance of capitalizing on available tax deductions to offset medical expenses. For 2023, taxpayers can deduct unreimbursed medical expenses that exceed 7.5% of their adjusted gross income (AGI). This threshold allows individuals to deduct a variety of costs, including preventative care, treatment, surgeries, and psychological counseling. Additionally, expenses for dental work, vision care, and medical devices such as glasses, contacts, and false teeth are also deductible. Taxpayers who have faced significant healthcare costs during the year should meticulously document their expenses to maximize this deduction and alleviate some of the financial burden associated with their medical care. It's advisable to consult with a tax professional to understand the full scope of expenses that qualify and ensure every eligible deduction is claimed.

Embracing the Evolving Tax Landscape

As we review the myriad tax changes taking effect in 2023, the common theme is clear: proactive planning and astute adaptation are essential. Taxpayers and businesses alike are presented with opportunities to capitalize on enhancements ranging from energy efficiencies to retirement contributions, all while navigating the shifting terrain of deductions and credits. These revisions not only reinforce the importance of staying informed but also underscore the potential for strategic decision-making to significantly impact your financial health. With the proper approach, the 2023 tax changes can be leveraged to foster tax efficiency, promote sustainable growth, and secure long-term prosperity. It is imperative to consult with a tax professional, ensuring that you fully utilize the benefits and meet the challenges of this dynamic fiscal environment.

Should you find yourself seeking clarity or wishing to explore the strategic implications of these tax changes further, please do not hesitate to reach out. Our dedicated team is ready to provide you with personalized guidance and support to navigate the tax landscape of 2023 efficiently. Contact us today, and let's ensure your financial strategy fully capitalizes on these updates for optimal fiscal health and prosperity.

I hope this information was helpful. If you have any questions, feel free to reach out. I’d be happy to chat with you.

Connect with Josh

About the Author

As Managing Partner of Vincere Wealth, Josh assists clients in navigating financial challenges and making sound financial decisions. Having someone guide you in making sensible financial decisions today can have a substantial impact on your future financial wellbeing. Josh takes great pride in guiding customers through the complexities of taxes, real estate, businesses, employer stock, and international financial planning.

If you're interested in an investment advisory or financial planning relationship, please consider Vincere Wealth Management.

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New Laws, Bigger Deductions: Changes For The 2024 Tax Season

Explore the latest updates for the 2024 tax season, featuring new laws and expanded deductions that can impact your financial planning. Stay informed to maximize your tax benefits and navigate the evolving tax landscape.

New Laws, Bigger Deductions: Changes For The 2024 Tax Season

Explore the latest updates for the 2024 tax season, featuring new laws and expanded deductions that can impact your financial planning. Stay informed to maximize your tax benefits and navigate the evolving tax landscape.

New Laws, Bigger Deductions: Changes For The 2024 Tax Season

Explore the latest updates for the 2024 tax season, featuring new laws and expanded deductions that can impact your financial planning. Stay informed to maximize your tax benefits and navigate the evolving tax landscape.

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