Tax season is upon us. Here’s what you should understand regarding tax refunds, tax brackets, and other important updates for 2024.
After a decline in 2023, tax refunds are projected to improve in 2024. Mark Steber, chief tax information officer at Jackson Hewitt, claims that lower to middle-income households might see refunds increasing up to 10% compared to last year. The average refund for 2023 was $3,167, reflecting a 3% decrease from 2022, according to the IRS. Though a 3% drop may seem minor, it significantly affected many families already burdened by inflation and rising living costs.
In 2024, new tax brackets from the IRS will be in effect. The standard deduction for single filers will rise to $14,600, up by $750, while married couples filing jointly will enjoy a standard deduction of $29,200, which is a $1,500 increase from 2023.
What to Anticipate for the 2024 Tax Season
Tax season starts on January 29, 2024. Filers can submit their returns from Monday, January 29th, 2024, until Monday, April 15th, 2024. There’s also the option to request an extension, (form 4868, available electronically) extending the filing deadline to mid-October.
Child Tax Credit, Other Dependent Care Credit, and Earned Income Tax Credit for 2024
In 2023, the credit amounts for the child tax credit and the earned income tax credit reverted to pre-pandemic levels, meaning consumers received less money back. This will continue in 2024, with the child tax credit remaining at $2,000 per child. Additionally, there’s a lesser-known “other dependent care credit” of $500 for aging parents or special needs children who qualify as dependents.
The earned income tax credit, which was adjusted for inflation in 2023, holds steady at $7,430 for families with three or more children in 2024.
Student Loan Interest Deduction and Forgiveness Tax Implications
With student loan payments resuming last fall, borrowers can once again deduct interest paid on their loans, similar to previous years. The maximum deductible amount is $2,500, so it’s wise to consult your tax preparer about your eligibility.
While most individuals benefiting from student loan forgiveness in 2023 won’t face taxes in 2024, some states haven’t enacted a provision from the American Rescue Plan exempting taxes on forgiven debt. If you reside in Arkansas, Wisconsin, Indiana, Mississippi, or North Carolina, you might be liable for state taxes on forgiven loans. Check with your tax preparer about necessary forms (like a 1099-C for cancellation of debt) to avoid overpaying and ensure you maximize your refund.
Additional Considerations for Tax Season 2024
Taxpayers should evaluate their taxable income and deductible expenses to estimate their tax position for the year. Key considerations include:
Home Office Deduction: With remote work remaining prevalent, current laws do not permit employees to deduct home office expenses. Business owners, however, can. If you own a small business and use part of your home exclusively for business, you might qualify for a deduction. You can choose the simplified method ($5 per square foot, capped at 300 square feet) or the regular method, which permits partial deductions for expenses like utilities and mortgage interest. Keep records of all expenses and calculate the business use percentage to determine deductions.
Teacher Deduction: In 2024, educators may deduct $300 of qualified expenses if they teach at least 900 hours during the year, an increase from the $250 cap last year. If both spouses in a married couple teach, the deduction limit rises to $600.
Cryptocurrency and NFT Reporting Requirements: Taxpayers must report all income from digital assets in 2024. Failing to report assets, including those in trusts, can result in penalties. Losses from crypto sales may be deductible, reducing taxable income.
Donor Advised Fund: If your income in 2023 places you in a high tax bracket for 2024, consider making larger donations to charity, either directly or through a donor advised fund (DAF).
Contributions from Bryan Strike, Lead, Senior Wealth Strategist at Mercer Advisors
