Tax Tips For 2024 - What You Need to KnowTax Tips For 2024 - What You Need to Know

Doing your taxes is a time-consuming and stressful task. Gathering the correct forms, choosing a service, and ensuring compliance can be overwhelming for most taxpayers.

Fortunately, new 2024 tax brackets, deductions, and savings breaks can help reduce your burden. Consider meeting with a financial advisor to exploit these new money-saving opportunities.

Don’t Forget About Your Health Insurance

Inflation may have declined recently, but rising prices for gas, housing, food, and other essentials could affect your tax situation this year. That’s why paying close attention to the IRS’s annual adjustments for tax brackets and deductions is important.

For 2024, the IRS bumped up some thresholds determining your marginal rate. Those changes could mean higher refunds or taxes paid for millions of Americans. In addition, the standard deduction was also increased, meaning you might pay less in income taxes if you decide to take that option instead of itemizing your deductions.

Remember that your federal and state paycheck withholdings affect how much you owe in taxes at the end of the year or how big your refund is. You can reduce the amount of withholdings from your paycheck by filling out a W-4 form or taking advantage of various available deductions and credits.

Whether you’re filing individually or as part of a married couple, the IRS expects you to accurately report your joint and separate gross income, plus your deductions and credits. That means you should carefully review any documents or receipts related to health insurance, charitable contributions, retirement savings, investments, and more. And there is always time to change your withholdings, as that can help you avoid surprises come tax time.

Health care is also top of mind for many people as we get closer to the April 30 deadline. Remember to check the maximum contribution limits for your health savings account if you have an individual health policy. Inflation-based increases to these limits for 2024 could help offset rising costs while helping you save for future health needs.

It would help if you also considered the timing of a Roth conversion, as the new tax rates could boost the value of the money you move into that account. Remember that there’s a new enrollment period this year for those with qualifying life events who are switching plans, especially those whose income changed enough to qualify for cost-sharing reduction subsidies.

Don’t Forget About Your Investments

With the IRS kicking off tax season, it’s an excellent time to ensure you’re prepared to file your return. That means ensuring that you have all the documents and forms needed. It’s also important to know if any new deductions or credits are available to help you reduce your tax bill or get a larger refund.

The IRS has adjusted for 2024 to account for inflation in tax brackets, standard deductions, retirement savings contributions, and other areas. These changes may significantly impact your income tax liability or refund amount. You can reduce your tax expenses in the future by updating your withholding and understanding these changes with the assistance of a financial professional from tax services near me.

Investing in tax-advantaged accounts can help increase wealth over time for retirement. However, you must ensure you pay enough each month to receive your employer’s matching contribution. It can be a significant boost to your total returns.

The best ways to invest are through traditional investment accounts like 401(k)s, individual retirement accounts (IRAs), and tax-advantaged mutual funds. Compound interest is a powerful tool to help your retirement savings grow significantly over time. By earning interest on both your initial investment and the interest that accumulates, you can reap significant benefits in the long term. Therefore, it’s essential to start investing as early as possible to take full advantage of the power of compound interest. It’s also a good idea to start an emergency fund and set aside at least three to six months of living expenses.

Small business owners can reduce taxes with the research and experimentation tax credit, new markets tax credit, and work opportunity tax credit. These credits are available to businesses that hire certain targeted workers, such as veterans and disabled individuals.

It is just a sample of the many new tax credits being introduced this year, and it’s a good idea to keep up with any changes in the tax code to maximize your benefits. By filing correctly, taking advantage of available deductions and credits, investing wisely, and staying current on tax laws, you can minimize your taxes and get the most from your hard-earned money.

Don’t Forget About Your Retirement Accounts

Whether you are an early retiree or still working, you must remember the tax rules that govern your retirement accounts. There are some simple things you can do to help make filing your taxes much easier and less stressful.

The first step is to consider any changes you may want to make to your filing status. It is a significant change to your tax situation, and you must take the time to understand the implications before making any decisions.

Once you have considered changing your filing status, you can consider any deductions or credits available. It includes contributions to your 401(k), health savings account, or student loan interest payments.

Your adjusted gross income (AGI), the figure used to calculate your estimated tax liability, may be lowered due to these deductions. The amount of your AGI will also impact the tax bracket you will be in, which can significantly affect your future financial security.

If you want to reduce your taxable income, moving money from your employer’s retirement plan into an individual IRA or other qualified plan options is a great way. It will allow you to lower your taxable income and give you more flexibility when planning for your retirement.

Taking a payout from your retirement account is an additional choice. Withdrawing funds early may result in federal and state taxes and a 10% penalty. It would help if you discussed distribution options with your employer and a tax professional before proceeding.

It’s essential to remember that if you receive a cash distribution from your retirement account, you can roll over the funds into an individual IRA or the qualifying plan of your new or former employer within 60 days (an indirect “rollover”). It is an excellent way to continue building your retirement savings while taking advantage of the associated tax benefits. It will prevent you from paying income and possibly early withdrawal additional taxes and will also allow the investment gains to continue to compound over time.

Don’t Forget About Your Charitable Contributions

It’s not just about the money: Charitable contributions can offer individuals a sense of fulfillment and meaning. As a result, many choose to incorporate this aspect of their financial planinto their year-end tax strategy to maximize their deduction and take advantage of potential charitable incentives.

Reviewing your tax brackets and eligibility for various credits and deductions before filing your return is essential. It will help you determine whether it’s worth itemizing or taking the standard deduction and adjust your income tax withholding to avoid getting stuck with a surprise bill in 2024.

Inflation Adjustments

The IRS makes inflationary adjustments to income thresholds and deduction limitations each year. These changes are meant to keep up with rising prices and prevent “tax bracket creep,” where your earnings can grow faster than your deductions and bump you into a higher tax rate. For 2024, these adjustments include a boost to the standard deduction and increases in other critical thresholds.

If you’re a regular donor, these increased thresholds may make it harder to reap the tax benefits of your donations. However, a few strategies can help you reap those rewards without itemizing every year. One such method is bundling, which involves making two annual gifts in one year. It enables you to exceed the standard deduction limit and drop into a lower tax bracket the following year, even if you don’t donate again.

A seasoned tax and financial advisor can help you navigate these complex issues in your unique circumstances. They can also help you develop a comprehensive financial plan that considers the tax advantages of giving while helping you achieve your other wealth-building goals and long-term retirement security.

By Grace