By: Hailey McCormick
With tax season quickly approaching, our goal is to provide you with the recent tax law updates for the optimal filing of your 2024 tax return.
Flexible Spending Arrangements (FSA)
The Flexible Spending Arrangement (FSA) allows employees to set aside pre-tax funds for medical expenses, with employers managing the accounts. For the 2024 tax year, the contribution limit has increased by $150, enabling employees to contribute up to $3,200 to their FSA. Additionally, the carryover provision allows employees to carry over up to $660 into the following tax year.
When considering how to use FSA funds, there are various options available. These funds can be used to cover expenses not included in your current health plan, such as routine checkups, eye exams, and dental visits.
Health Savings Account (HSA)
Contributing to a Health Savings Account is very important to help cover healthcare costs with contributions being tax free. The HSA contribution limits for 2024 are $4,150 for self-only coverage and $8,300 for families. If you are of age 55 or older, you are eligible to contribute an additional $1,000 for a catch-up contribution.
1099-K Threshold Drops to $5,000
The 1099-K Form is essential for reporting payments made through transaction apps such as Venmo, PayPal, and similar platforms. Previously, third-party platforms were required to issue Form 1099-Ks to taxpayers who received over $20,000 and made 200 or more transactions through these apps. However, a recent change lowers the reporting threshold to $600. For the 2024 tax year, the threshold stands at $5,000, as this year operates as a transitional period. Third-party platforms will send Form 1099-K to taxpayers for transactions totaling $5,000 or more in January 2025. It is important for 1099-K workers to be mindful of the upcoming threshold decrease, as the increased reporting requirements may lead to a higher tax liability by the end of 2025.
Bonus Depreciation Write-Offs for Businesses
Effective starting in 2017, the Tax Cuts and Jobs Act allowed business owners to write off 100% of the cost of qualified assets purchased between September 27, 2017, and January 1, 2023. Beginning in 2023, the percentage of bonus depreciation available started to decrease by 20% each year. This means that for the 2024 tax year, 60% of the cost of qualifying assets can be written off as bonus depreciation. This percentage will continue to decrease annually until it reaches 0% in 2027. Business owners should take advantage of this write-off before it completely phases out in 2027.
Catch-Up Contributions
Catch-up contributions are additional retirement savings contributions that allow individuals aged 50 and older to make extra payments to their individual retirement accounts (IRAs) and 401(k) plans. For the 2024 tax year, individuals in this age group can contribute up to $7,500. This strategy enables qualified workers to reduce their taxable income by utilizing pre-tax contributions.
Tax-Loss Harvesting (TLH)
If you have an investment that has decreased significantly in value, tax-loss harvesting could be a valuable strategy for you. This approach involves selling an investment at a loss, reinvesting the proceeds, and using additional tax savings to your advantage. Tax-loss harvesting helps reduce capital gains taxes by selling underperforming investments and replacing them with similar assets. The benefits include offsetting capital gains, reinvesting the tax savings, and lowering your taxable income, potentially resulting in savings on your 2024 tax return. With this being said, it is important to be mindful of the “Wash-Sale Rule,” this prohibits repurchasing the same or similar securities within 30 days.
Earned Income Tax Credit
The Earned Income Tax Credit (EITC) is designed to support individuals and families with low to moderate incomes. It is a refundable credit, meaning it can reduce the amount of taxes owed or increase your tax refund. For the 2024 tax year, the credit amount ranges from $632 to as much as $7,830, depending on your circumstances. You may qualify if you meet the following criteria: you have earned income, investment income below the set limit, a valid Social Security number, are a U.S. citizen, and have not filed Form 2555 for Foreign Earned Income.
Child Tax Credit
The Child Tax Credit is an effective way to increase your refund if you qualify. For individuals earning less than $200,000 annually and joint filers with a combined income under $400,000, the credit is $2,000 for each dependent under the age of 17. It is important to note that up to $1,600 of the Child Tax Credit is refundable.
Education Savings Bond Program
The education savings bond program allows qualified taxpayers to exclude income earned from eligible Series EE and Series I bonds issued after 1989. To qualify, the bond owner must be at least 24 years old at the time of purchase. Additional eligibility requirements include having a modified adjusted gross income (MAGI) between $96,800 and $111,800 for individuals, or between $145,200 and $175,200 for those filing jointly. If your MAGI exceeds these thresholds, ($111,800 for individuals or $175,200 for joint filers) you must include all interest in your income.
Earnings from these bonds can be used to pay education expenses for the bond owner, spouse, or dependent. This program offers a valuable opportunity for families to save for education costs while potentially benefiting from tax savings through interest deductions.
Student Loan Interest Deduction
If you have student loans, you may qualify for a student loan interest deduction. For the 2024 tax year, this deduction begins to phase out if your MAGI is between $80,000 and $95,000 for individuals, or between $165,000 and $195,000 for joint returns. You are not eligible to claim the deduction if your MAGI exceeds $95,000 individually, or $195,000 jointly.
Adjustments for Inflation
The changes in standard deductions are as listed:
Filing Status | 2023 Tax Year | 2024 Tax Year | % Increase |
Single | $13,850 | $14,600 | 5.42% |
Married, filing separately | $13,850 | $14,600 | 5.42% |
Married, filing jointly | $27,700 | $29,200 | 5.42% |
Head of household | $20,800 | $21,900 | 5.29% |
The 2024 tax brackets are as follows:
Tax Rate | Single | Married filing jointly | Married filing separately | Head of household |
10% | $0 to $11,600 | $0 to $23,200 | $0 to $11,600 | $0 to $16,550 |
12% | $11,601 to $47,150 | $23,201 to $94,300 | $11,601 to $47,150 | $16,551 to $63,100 |
22% | $47,151 to $100,525 | $94,301 to $201,050 | $47,151 to $100,525 | $63,101 to $100,500 |
24% | $100,526 to $191,950 | $201,051 to $383,900 | $100,526 to $191,950 | $100,501 to $191,950 |
32% | $191,951 to $243,725 | $383,901 to $487,450 | $191,951 to $243,725 | $191,951 to $243,700 |
35% | $243,726 to $609,350 | $487,451 to $731,200 | $243,726 to $365,600 | $243,701 to $609,350 |
37% | $609,351 or more | $731,201 or more | $365,601 or more | $609,351 or more |
Source: Federal income tax rates and brackets | Internal Revenue Service
Conclusion
When filing your 2024 tax return, it is important to consider the listed information to optimize your tax return. The tax strategies outlined above are for informational purposes and should not be solely relied upon for tax, legal, or accounting guidance. While applying any of these strategies may benefit you, it is always recommended to seek advice from a professional before proceeding with any transactions. Contact Lear & Pennepacker with any questions you may have.