As we close out 2024, it’s time to start thinking about how taxes will impact our financial situations this year. With the election recently occurring and many economic changes on the horizon, you may wonder what changes you should anticipate when filing your taxes. So, what are the changes in taxes this year?
In this article, we’ll break it down into 2 categories:
- People who are filing personal taxes
- People who are filing business taxes
What Are the Changes in Taxes This Year?
For the purposes of this article, “filers” refers to anyone who is filing taxes on their own or using an accountant to file personal taxes. These include the following IRS categories:
- Single filers – unmarried (or married and filing separately) individuals
- Married and filing jointly – a married couple sending 1 filing report for their individual incomes and assets
- Heads of household – unmarried individuals who support a qualifying dependent, defined as a child under the age of 19 (if not a full-time student) or 24 (if a full-time student) or a person who has totally limiting disabilities. Likewise, a dependent may be a relative who has lived with you for a full year, has made less than $5,050 in 2024 (up from $4,700 in 2023), and has not contributed to more than half of their living costs. Importantly, if you claim someone as a dependent, no one else may claim them. So, if you split custody with someone else, you might want to decide who should claim them as a dependent.
Navigating tax changes can be confusing. If you’re struggling to understand how they will impact you, or if you have special circumstances, we highly recommend working with a professional to help you file! That way, you reduce you chances of making costly mistakes and increase your opportunities to get a great return!
Standard Deductions
Standard deductions refer to the amount of money that gets subtracted from someone’s income to determine how much of their income will be taxed. This is put in place to help people keep the amount they owe the IRS to a minimum. So, you get to keep more of your money!
This year, the IRS has raised the standard deduction amounts to account for inflation. Here are the new numbers, divided by types of filers:
- Single filers – $14,600
- Married couples filing jointly – $30,000
- Heads of household – $22,500
Let’s clarify with an example:
A married couple earns a total of $200,000 per year. Because they’re filing jointly, they’ll get $30,000 in standard deductions. So, their amount of taxable income lowers to $170,000.
Retirement Account Limits
For the 2024 tax year, the IRS has raised retirement account contribution limits. Those who have Individual Retirement Accounts (IRAs) can contribute up to $7,000 per year. In addition, IRA holders over the age of 50 can make an additional contribution of $1,000 if they feel they need to catch up on their savings.
People who have a 401(k) can contribute up to $23,000, with individuals over age 50 able to contribute an additional $7,500.
Changes in Capital Gains Taxes
If you have sold an asset in 2024, you may have to pay capital gains taxes. People with a taxable income from $47,026-$518,900 will owe 15% in capital gains taxes, while people above that number will owe 20%.
Taxable incomes below $47,026 will not incur capital gains taxes. This might influence your decision on whether or not to sell an investment.
Tax Credits
Your ability to claim a tax credit on your 2024 tax return may have changed, as have the financial limits on some of the credits.
The Child Tax Credit
For the Child Tax Credit, which is available to filers who care for children, the base amount of the credit is at $2,000 per child, which remains the same from last year. However, the refundable portion of the credit has been increased to $1,600 per child.
To qualify for the Child Tax Credit, the child must be under the age of 17 by the end of 2024. In addition, they must be your son, daughter, stepchild, sibling (either half or full), step-sibling, foster child, or a descendant of your relative for whom you are the primary caregiver. Finally, you must be claiming this child as your dependent on your tax return, and they must be formally classified as a U.S. citizen, a U.S. national, or a U.S. resident alien.
To claim this credit, individual filers must not make more than $200,000, and joint filers must not make more than $400,000 combined.
Earned Income Tax Credits (EITC)
The EITC is designed to give low-income filers a break. To qualify for it, you need to meet certain income requirements. For reference:
- Filers with no children must make no more than $18,591 if they are not married and $25,511 if they are married and filing jointly.
- Filers with one child must make no more than $49,084 if they are not married and $56,004 if they are married and filing jointly.
- Filers with two children must make no more than $55,768 if they are not married and $62,688 if they are married and filing jointly.
- Filers with three or more children must make no more than $59,899 if they are not married and $66,819 if they are married and filing jointly.
If you have no children, you’ll get $632. Those who have one child will receive $4,213, and a two-child household will get $6,960. For people with three or more children, the EITC offers $7,830.
Introduction of a New Form 1099-K
If you receive payment for work or services via a payment platform such as (but not limited to) PayPal or Venmo or to a bank credit card, you may need to file a Form 1099-K.
The Form 1099-K threshold for reporting your income starts at $5,000, which is lower than last year’s $20,000. So, if you made $5,000 or more via these means, you’ll need to file this form even if you didn’t have to last year.
Next year, the minimum is expected to lower to $2,500!
Preparing to File Your Taxes
Now that you know what are the changes in taxes this year, it’s time to begin preparing to file your taxes. To make it easier on yourself, either use an online platform or something like H&R Block to help you out. That way, you won’t miss a single tax credit or make any mistakes based on this year’s changes. Learn more about how to prepare your taxes!
