It’s a new tax season, signaling a time of financial planning and assessment for individuals and businesses alike. Taxpayers must be keenly aware of the tax-law changes in 2024, since these changes will impact those across various income brackets. Creating a new financial plan during the tax bracket shift allows taxpayers to minimize tax liability and be aware of new opportunities.
Due to inflation and other current economic factors, tax brackets are more favorable this year than last. The following provides the noteworthy changes this tax season along with insights on how taxpayers can maximize their financial planning.
New Threshold for Standard Deductions
Tax thresholds will experience a shift this tax season in response to the current inflation rates. According to 2024 Internal Revenue Service data, there will be a 5.4% increase, meaning some taxpayers may continue seeing a tax benefit in 2024.
The standard deduction is increasing to $1,500 for married couples filing jointly, $750 for single taxpayers and married individuals filing separately, and $1,100 for the heads of households. These adjustments aim to not only ease the tax burden on individuals, but also to provide relief for small business owners who opt to file their returns using the standard deduction.
Increased Limit for Retirement Plans
The total dollar amount employees can contribute to their 401(k) increased to $23,000. Individuals who are 50 years or older can make a catch-up contribution of $7,500, totaling $30,500 in their retirement plan. Those with an Individual Retirement Account can now contribute $7,000, while adults 50+ can contribute a total of $8,000.
Employees should revisit their plans to ensure that their contributions align with the 2024 increases.
Standard Mileage Rate
The IRS notes the standard mileage rate for electric and hybrid-electric automobiles as well as gasoline and diesel-powered vehicles that are used for business-related transportation has increased to 67 cents per mile — up 1.5 cents since the previous 2023 tax season.
Standard mileage deductions can also be used for charitable or medical purposes. The mileage rate is 14 cents per mile for charity use and 21 cents per mile for medical or military moving.
Take Advantage of QBI Deductions and Write-Offs
Business owners need to be aware of the Qualified Business Income deductions, which offer a 20% tax deduction of pass-through income. QBI deductions are available for sole proprietors, small business owners and S Corporation shareholders.
QBI deductions do not lower self-employment taxable income, which is why self-employed individuals should take advantage of business write-offs. It’s extremely important to review what you can deduct each year to ensure your business is as profitable as possible if you’re self-employed.
Write-offs include but are not limited to business expenses for the home office, vehicle use, meetings with clients, travel and premiums for insurance that you pay to protect your business and health insurance. Legitimate deductions also include startup, advertising and retirement plan costs.
Charitable Deductions
Donations to nonprofits are tax-deductible if they are registered and approved by the IRS. According to the IRS, 501(c)(3) organizations include religious organizations, educational institutions and foundations.
Taxpayers can deduct the value of their donation to legitimate nonprofits when filing their income tax return if they itemize deductions, rather than using the standard deduction. Deduction percentages depend on the charity activity, but generally taxpayers may deduct charitable contributions of 20-60% of their Adjusted Gross Income. But they should verify the organization’s status with the IRS to ensure they don’t complete a wrongful deduction.
Taxpayers and business owners alike should be aware of these 2024 tax season changes to better prepare for financial success and, ideally, get their refunds.
Karina Felix, CFO of Versus Accounting and Finance Consultants, works with rules and regulations for 501(c)3 and 501(c)4 organizations, and protection of tax-exempt status. She has recently launched Versus Consultants which is focused on financial and management procedures to streamline operations that allow the growth and consolidation of not-for-profit organizational structure.
