Tax Changes You Need to Know: From a Financial Advisor

The Consumer Price Index tracks the cost of everyday items for Americans. It shows a slowdown but remains high. This may change your financial situation.

As a result, your tax return for 2024 could be different from last year. For personalized help, talk to a tax advisor. Here are some factors that might lead to owing taxes this year. You may also see a change in your refund or tax bill, whether it is larger or smaller.

Annual Tax Changes Impacting Everyone

Every year, the IRS updates different tax benefits. These include deductions and refunds. These changes may affect your tax situation this year.

Adjustments to Tax Brackets

Your income level can affect your tax rate. This is true if it increased, decreased, or stayed the same. Changes in the federal tax brackets for 2024 may also play a role. These brackets have been adjusted upward by 5.4% compared to 2023 to account for inflation.

For instance, the 22% tax bracket for single filers, which spanned $44,726 to $95,375 in 2023, will now range from $47,151 to $100,525 in 2024. Therefore, even if you were taxed at a certain rate last year, it doesn’t guarantee the same outcome this year.

Changes to the Standard Deduction

Opting for the standard deduction simplifies the process of lowering your taxable income. For single filers and married individuals filing separately, the deduction will increase by $750, reaching $14,600 in 2024. For those filing jointly, the deduction will rise by $1,500 to a total of $29,200.

Modifications to Tax Credits and Deductions

It is important to understand the difference between tax credits and deductions. Tax credits lower the amount of tax you owe. Deductions reduce your taxable income.

For example, a $250 tax credit lowers your tax bill directly. A $250 deduction reduces your taxable income. This leads to a smaller reduction in taxes owed, depending on your tax rate.

Here are some credits and deductions that have been adjusted, potentially affecting your refund or tax obligation:

●      Child Tax Credit: Remains at a maximum of $2,000 per qualifying child under 17 for 2024, unchanged from 2023. It phases out based on modified adjusted gross income (MAGI) and is nonrefundable.

●      Adoption Credit: Increases to $16,810 for 2024 from $15,950 in 2023, with phase-out limits beginning at a MAGI of $252,150.

●      Earned Income Tax Credit: The maximum credit goes up to $632 for single filers without children. For those with three or more qualifying children, it can reach $7,830.

●      Student Loan Interest Deduction: The deduction cap is still $2,500. However, the income limits have increased for 2024. Joint filers with MAGIs up to $165,000 can now claim the full deduction.

●      Health Savings Account (HSA) and Flexible Spending Account (FSA) Contributions: Contributing to these accounts can further decrease your taxable income, with higher limits set for 2024.

Personal Changes That May Affect Your Taxes

Life events can also influence your tax return and potential refund.

Going Green

Buying an electric vehicle now lets you use the Clean Vehicle Credit for your down payment. You can also claim it when you file your taxes. Remember, this credit is nonrefundable, and new income and component requirements have been introduced.

Selling Digital Assets

The IRS considers "digital assets" like cryptocurrencies and NFTs as property, subjecting their sale to capital gains tax. Tax rates for long-term capital gains have shifted slightly, and taxpayers must pay attention to state taxes as well.

Marriage

If you recently got married, your taxes may change. You might see an increase in your standard deduction. Your tax bracket could also adjust. However, there's a chance of encountering a marriage tax penalty if your combined income exceeds certain limits.

Family Expansion

Welcoming a new family member could make you eligible for various credits, such as the Child Tax Credit or the Adoption Tax Credit, potentially reducing your tax burden.

Remote Work

Working from home may necessitate filing taxes in multiple states. It’s essential to verify withholding calculations and understand local tax requirements.

Educators' Expenses

Teachers can deduct up to $300 for unreimbursed classroom expenses in 2024, an increase from the previous $250 limit.

Side Hustles

If you've started freelancing or a side business, you may receive 1099 forms and are responsible for estimating and paying taxes quarterly.

Government Benefits

Unemployment benefits received in 2024 are taxable on both federal and, in many cases, state levels.

Disaster Area Residency

Taxpayers in federally designated disaster areas may benefit from extended filing deadlines and the ability to exclude qualified disaster relief payments from their income.

For personalized guidance, consider consulting with a tax professional to navigate these changes effectively.

Sources:

https://www.fidelity.com/learning-center/smart-money/why-do-I-owe-taxes

Disclosures:

This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.

This material is provided as a courtesy and for educational purposes only.

These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.

Advisory Services Network, LLC does not provide tax advice.  The tax information contained herein is as of the date indicated based on the information available at the time and is general and is not exhaustive by nature.  Federal and state laws are complex and constantly changing.  You should always consult your own legal or tax professional for information concerning your individual situation.