For astute taxpayers, paying income taxes is more of a year-long process than a single event. As the filing deadline approaches, people may begin preparing to obtain the maximum tax refund.
Jackson Hewitt’s chief tax information officer, Mark Steber, talks about inflation on tax rates and new tax trends to keep an eye on in the next year. Steber also provides taxpayers with actionable suggestions for a greater tax refund.
Annual Inflation Modifications
The Internal Revenue Service (IRS) stated on October 18, 2024, that for the tax year 2024, there would be yearly inflation adjustments for over sixty tax laws. These include tax rate schedules, energy credit modifications, an increased maximum Earned Income Tax Credit — $7,430 for qualified taxpayers with three or more qualifying children — and more, in addition to remarks on impacted items, which may be found on IRS.gov.
The inflation adjustments for 2024 taxes were notified last year, according to Steber. Presently, taxpayers are observing 2024 tax inflation adjustments.
Steber explained that your salary might increase thanks to inflation; however, our taxes for 2024 will be filed in 2024 under the new tax tables and standard deductions outlined in the IRS Revenue Procedure 2024-38.
Changes to Form 1099-K
Significant tax law changes will require users of third-party applications like Venmo and PayPal to receive Form 1099-K if they receive more than $600 on these platforms after April 2024. Third-party payment networks and others that process payments must submit Form 1099-K after the maximum amount collected through the vendor reaches $600.
This remains a tax trend to monitor in 2024. Historically, according to Steber, Form 1099-K was sent when a taxpayer received more than $20,000 and had 200 or more transactions. This modification, according to Steber, is designed to reduce the tax gap by collecting taxes owing on all income, as opposed to the erroneous belief that the first $20,000 of income was not taxable if no form was provided.
Steber explained that income has always been taxable, so the only difference is that the form will be sent much earlier.
Additionally, uncertainty may result from personal dealings. The repayment of expenses such as dining out with a friend or family member falls into this category. Steber stated that this revenue stays tax-free.
Child Tax Credit Modifications
There may be some uncertainty about the child tax credit during tax season 2024, so let’s clarify this immediately. Steber stated that the credit amount will decrease by $1,000 for children aged six and older and by $1,600 for those under the age of 6.
The credit amount has changed, and the child tax credit is mainly nonrefundable. The credit is limited to 15% of earnings exceeding $2,500 from work or self-employment.
Steber stated that the child and dependent care credit has also reverted to norms in effect before 2021. Again, the credit cannot exceed 35% of allowable costs, and expenses are capped at $3,000 for one qualifying kid and $6,000 for multiple children.
How To Anticipate Tax Season
Taxpayers may begin getting ahead of tax season immediately by doing the following three steps:
Steber advises categorizing your tax-related paperwork into four categories as you begin to acquire them.
- Revenue Items
- Existence Changes
If your financial position is more complex, it’s best to have even more categories, such as self-employment, investments, and so on, Steber added. It will be easier to file if you do this now rather than wait until tax season.
Consider Methods To Lower Your Taxable Income
If possible, increase your contributions to your retirement funds. Steber stated that IRA holders had until April 17, 2024, to make 2024 deposits.
If you are at least 72 years old and have a traditional IRA or pension plan, you must take your annual mandatory distribution to avoid a penalty, Steber said.
Find a Tax Expert Immediately
Do not consult a specialist at the last minute, especially if you have questions. Steber suggests contacting a tax expert as soon as possible who may offer advice and insight pertinent to your specific financial circumstances.
You and your family may qualify for a credit that your neighbor or friend may not. It is advisable to speak immediately with a tax expert to determine your status and avoid making assumptions.
Consider Modifying Form W-4 for Next Tax Season
A prevalent misconception is that Form W-4 may only be completed and updated when a new job begins. In reality, taxpayers may choose to revise this form since it allows them to regulate the amount of federal income tax deducted from each paycheck.
Although it’s too late to improve your tax status this year, get a head start on next year. Steber stated that the amount of tax withheld depends on your filing status, the frequency of your paychecks, the anticipated income from work, and your other income and deductions. Steber suggests raising your withholding if you are near to owing taxes, are about to owe, or will have a low refund in order to minimize or eliminate owing taxes or enhance your refund.