The period between late January and mid-April is traditionally the busiest for the tax industry. With each tax season, it appears that new regulations emerge. This article covers essential updates for the 2024 tax filing season, which corresponds to the 2023 tax year, helping you prepare effectively.
Standard Deduction Increases About 90% of taxpayers opt for the standard deduction, which has been adjusted upwards due to inflation. For 2023, single filers and those married but filing separately will see their deduction increase from $12,950 to $13,850. Married couples filing jointly and qualifying widows will see theirs rise from $25,900 to $27,700. Heads of households will receive $20,800, up $1,400 from last year. These increases aim to lower overall tax liabilities.
Additional Deductions for Seniors and the Blind Taxpayers who are blind or over the age of 65 will see additional increases in their standard deductions. Singles and heads of households will receive an additional $1,850, up $1,000 from last year, while married and widowed individuals will get an extra $1,500.
Adjustments to Income Tax Brackets Income tax brackets also adjust for inflation. The system uses a tiered percentage approach, ensuring only the income above each bracket’s threshold is taxed at the higher rate. For 2023, the 10% bracket applies to the first $11,000 of income for single filers and the first $22,000 for married couples filing jointly.
Energy Tax Credits The Inflation Reduction Act of 2022 extends several energy tax credits into 2023. Eligible new clean vehicles can earn credits up to $7,500, and used electric vehicles up to $4,000 or 30% of the sale price, whichever is less. Home improvements that enhance energy efficiency may qualify for credits up to 30% of the cost, capped at $1,200, with certain installations like heat pumps eligible for up to $2,000.
Continued Solar Energy Credits The solar energy tax credit remains at 30% for the second year of its ten-year duration, covering installations like solar panels and solar water heaters.
Delays in 1099-K Reporting The IRS has postponed the implementation of a new rule that would lower the reporting threshold for third-party network transactions to $600. Instead, the existing threshold of $20,000 and 200 transactions will remain for 2023. A transitional threshold of $5,000 is set to be introduced in January 2025.
Retirement Plan Adjustments Contribution limits for 401(k) plans in 2023 are $22,500 for individuals under 50 and $30,000 for those over 50. The limits for IRAs and other traditional retirement plans are $6,500 and $7,500, respectively. Special provisions apply for early distributions in response to natural disasters, with certain penalties waived.
Student Loan Interest Deduction With the resumption of student loan payments in late 2023, taxpayers can deduct the interest paid on these loans, potentially reducing their taxable income.
ACA Marketplace Changes The ACA Marketplace now allows more people to qualify for the Premium Tax Credit, with the income eligibility cap set at 400% above the poverty level. This translates to a maximum of $120,000 for households in 48 states, $150,000 in Alaska, and $138,000 in Hawaii.
While the tax landscape may seem complex, a range of professionals from tax companies to software platforms are available to assist you in maximizing your returns and navigating the season with confidence. Now informed of the latest tax changes, you can better organize your documentation and approach the tax season with less stress.
