Key Tax Law Changes and Guide to Filing Taxes in 2024

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Key Tax Law Changes and Guide to Filing Taxes in 2024

In the upcoming tax season, there are new rules or changes to important amounts that might affect your federal tax return. We’re here to explain these significant changes in tax laws and provide you with the necessary information to help you grasp how they might impact your taxes.

Let’s start with the basics: when you can submit your return, the deadline for filing your 2023 tax return, and what the standard deduction is for this year. Once we cover these fundamentals, we’ll delve into updates in tax laws, adjustments, and essential details to make filing your taxes easier for you.

Read more: 8 Tips to Tax-saving for Year-end Planning

When can I File My 2023 Tax Return? (The Taxes You File in 2024)

The IRS hasn’t set a specific date for people who prefer to file their tax returns early. Typically, the window for filing opens around late January. We’ll keep you posted and update this information as soon as the IRS makes an announcement.

When is the Deadline for Filing my 2023 Tax Return? 

The due date for submitting your 2023 tax return is by midnight on Monday, April 15, 2024, unless you request an extension. Residents in regions hit by natural disasters might have different, later deadlines for filing their taxes.

What’s the Deadline to File For a Tax Extension? 

If you can’t file your taxes by April 15, 2024, you have some choices available to you.

You can file for an extension, which grants you an extra six months until October 15, 2024, to complete and submit your return. However, if you anticipate owing taxes, it’s essential to estimate the amount owed and make that payment along with your extension form.

Another possibility is filing a late return without requesting an extension. If you don’t owe taxes or are expecting a refund, you might not face a penalty for filing late. However, if taxes are due, there could be penalties incurred for late filing.

Even if you don’t owe taxes or expect a refund, it’s advisable to file as soon as possible. This ensures a timely refund receipt or confirms that you don’t owe anything. Further details on filing returns at no cost and claiming your tax refund can be found below.

What are the Changes in Taxes for 2023 and How Do They Affect You?

During the 2022 tax year (the taxes you file in 2023), key tax benefits linked to COVID relief, like the Child Tax Credit, either returned to previous tax rules before the American Rescue Plan or ceased to exist. This shift led to taxpayers noticing smaller refunds compared to when COVID-19 relief measures were active. While these aren’t new tax changes for 2023, it’s important to highlight them as a reminder, especially if you’re reapplying for these significant tax advantages after the period of COVID-19 relief.

The major tax benefits affected by provisions reverting to pre-American Rescue Plan tax rules that might result in lower tax refunds include the Child Tax Credit, the Child and Dependent Care Credit, and the Earned Income Tax Credit:

Child Tax Credit

For the tax year 2023, here’s how the Child Tax Credit has changed:

  • The credit decreased from a maximum of $3,600 under COVID relief in the 2021 tax year to a maximum of $2,000.
  • Each eligible dependent child should be under 17 years old.
  • It’s no longer entirely refundable but can be refunded up to $1,600.
  • There were no advance payments made for the 2023 tax year.
  • The credit is accessible if your income is up to $200,000 as a single taxpayer or head of household (or up to $400,000 for married couples filing jointly).

Child and Dependent Care Credit

Similar to the 2022 tax year, the provisions for the Child and Dependent Care Credit in 2023 remain as they were before the COVID relief offered by the American Rescue Plan:

  • You can claim up to 35% of $3,000 (which equals $1,050) of childcare expenses for your dependent child under 13, an incapacitated spouse or parent, or another dependent, to enable you to work or seek employment.
  • If you have two or more dependents, the credit can go up to 35% of $6,000 in expenses (equivalent to $2,100).
  • During the 2021 tax year under COVID relief, this credit saw a substantial increase and was as high as $4,000 (50% of $8,000) for one child and $8,000 (50% of $16,000) for two or more children if you were eligible for it.
  • This credit reduces for incomes over $15,000.

Earned Income Tax Credit (EITC)

The Earned Income Tax Credit (EITC) is a tax benefit designed for low- to moderate-income workers and families. This credit can lower the taxes you owe and possibly result in a larger refund. For the 2023 tax year, this tax credit can reach a maximum of $7,430 for a family with three children. Taxpayers with no children must be at least 25 years old but under 65 to qualify for this credit.

What are some of the changes in important amounts that affect my taxes?

Retirement Plan Contributions

The highest contribution limits for 401K plans have increased to $22,500 for 2023 ($30,000 for individuals aged 50 and above). Similarly, the maximum contribution limit for traditional and Roth IRAs has gone up to $6,500 ($7,500 for individuals aged 50 and above). You’re allowed to contribute for 2023 to your IRA until the April deadline, and there’s a possibility of claiming a deduction for this contribution amount on your 2023 taxes (the ones filed in 2024).

Health Savings Account

You can contribute to your Health Savings Account up to $3,850 for self-only coverage and up to $7,750 for family coverage. Remember, you might be eligible to deduct contributions directly made to your health savings account when filing your taxes.

Flexible Spending Account

Contributions up to $3,050 are permitted. If your employer’s plan allows carrying over unused amounts, the maximum carryover amount for 2023 is $610.

Deductible Mileage Rates

For business-related travel, keep track of your business mileage as you can deduct it. For tax year 2023, the mileage rate for business purposes is 65.5 cents per mile. Additionally, if you traveled for medical appointments, you might be able to deduct expenses related to these visits at a rate of 22 cents per mile. If you drove for volunteering purposes for a recognized charity (501(c)(3)), you might be eligible to deduct your mileage expenses at a rate of 14 cents per mile.

The Adoption Credit

If you covered eligible adoption expenses during 2023, you might qualify for a credit of up to $15,950 on your 2023 tax return.

Annual Gift Tax

In 2023, the annual gift tax exclusion stands at $17,000 ($34,000 for married couples). This means you can gift up to $17,000 without incurring taxes on that specific amount.

What else Should I Pay Attention to When Filing My Taxes?

Unemployment Benefits

If you received assistance from unemployment insurance, keep in mind that you’ll need to pay taxes on the payments received. You should receive a 1099-G form reporting the unemployment benefits received.

Business and Home Deductions

For self-employed individuals, various deductions are available, such as business travel mileage and the part of your home used as a home office. TurboTax Premium can assist you by exploring industry-specific deductions to ensure you don’t miss out on business-related deductions linked to your self-employed income.

However, if you’ve been working from home due to your employer’s arrangement, unfortunately, you won’t be eligible to claim deductions for your home expenses. This deduction applies exclusively to self-employed workers.

What Tax Forms and Documents Should I Gather?

If 2023 was your first year working a side job, receiving unemployment benefits, or trading stock, you may receive more tax forms than before.

Here are some common tax forms where your income might be reported, based on various scenarios:

  • 1099-G: For unemployment benefits received.
  • 1099-DIV/1099-INT: If you received dividends or earned interest above $10.
  • 1099-NEC: Reports self-employment income or nonemployee compensation.
  • 1099-MISC: If you earned rental or other income; note that self-employment income is reported differently now.
  • 1099-K: For income earned from credit card or third-party payments exceeding $20,000 in aggregate or from over 200 transactions.
  • 1099-SA: For health savings account distributions.
  • 1099-R: If you received distributions from a retirement plan or IRA.
  • 1099-B: If you sold stock.
  • W-2: For wages earned from an employer.

Different Options for Filing Your Taxes

If you’re among the approximately 100 million eligible individuals for free tax return filing, you can retain your entire refund by choosing from these alternatives.

In-Person Full-Service Free Tax Preparation

If you meet the criteria outlined below, you might qualify for in-person, full-service tax preparation services provided by the IRS Volunteer Income Tax Assistance (VITA), AARP Foundation Tax-Aide, and The Tax Counseling for the Elderly (TCE) programs. These cost-free programs have been in operation for over 50 years, staffed by IRS-certified tax preparers meeting rigorous IRS quality standards. This ensures the accuracy of your tax return.

You can book an appointment at VITA/TCE and Tax-Aide sites if you:

  • Generally earn $60,000 or less,
  • Have a disability,
  • Possess limited English skills or use English as a second language, or
  • Are 60 years of age or older.

Note: Some VITA or AARP Tax-Aide sites operate year-round, while others close after the tax season. While searching for a site, review the “Dates open” column to identify a location planning to remain open after April 15, 2024.

Remote Full-Service Free Tax Preparation

If your income is $73,000 or less, you have options to receive assistance from IRS-certified volunteers to prepare your return:

MyFreeTaxes: You can prepare your return with guidance from IRS-certified volunteers using MyFreeTaxes when needed.

GetYourRefund: Connect virtually with VITA providers across the country to have your return prepared by signing up through GetYourRefund if your income is $66,000 or less.

Free Self-Preparation

If your income is $73,000 or less, you might qualify to prepare and file federal income tax returns for free online using guided tax preparation software available through IRS Free File. However, the eligibility for free products varies among providers, and some may charge fees for state returns. It’s essential to carefully review the offers and access this service through the IRS link rather than directly going to the guided tax preparation software website.

Free Tax Filing for Servicemembers

Through MilTax, the following individuals can prepare and file their tax returns for free:

  • Active-duty service members, spouses, and dependent children of eligible service members.
  • Members of the National Guard and reserves, regardless of activation status.
  • Retired and honorably discharged service members, including Coast Guard veterans, within 365 days of their discharge.
  • Family members handle the affairs of an eligible service member while deployed.
  • Designated family members of severely injured service members unable to handle their affairs.
  • Eligible survivors of active-duty, National Guard, and reserve deceased service members, regardless of conflict or activation status.
  • Certain members of the Defense Department Civilian Expeditionary workforce.

Consider these factors before using a fee-based tax preparer

Here are some points to consider before opting for a paid tax preparer:

Fees are usually based on how complex your tax return is. If your situation involves multiple income sources, self-employment, specific tax credits, or significant life changes during the year, your fees may be higher compared to a straightforward return.

Even if your return is complex, you might still qualify to file for free if you meet certain guidelines. It’s advisable to check with a free tax provider before paying for tax preparation services.

Important tips when choosing a paid preparer:

  • Check their qualifications by using the IRS directory of federal tax return preparers to verify their credentials.
  • Examine the preparer’s track record by inquiring with the local Better Business Bureau about their history.
  • Ask about service fees and be cautious of preparers making exaggerated claims about securing larger refunds than their competitors.
  • Ensure the preparer is available after the April 15 deadline in case you need assistance with your taxes.
  • Remember, your tax documents like W-2s are your records. Preparers cannot retain the original documents or your ID to coerce you into using their service. If you use their service, they will need copies of your documents for their records.
  • Confirm that the preparer signs the return and includes their Preparer Tax Identification Number (PTIN). All paid tax preparers must possess a PTIN and are legally required to sign returns with their PTIN included.

Be aware that paid preparers may offer additional products like refund anticipation checks or refund advance loans that could reduce your refund amount.

Understanding Refund Anticipation Checks (RACs) and Refund Advance Loans (RALs)

Refund Anticipation Check (RAC)

If you’re using a paid tax preparer and don’t have the upfront filing fees, some preparers might propose a Refund Anticipation Check (RAC). With a RAC, you pay the tax preparation fee from your refund instead of paying upfront. Once you receive your refund, the preparer deducts the RAC fee, filing fee, and any other service charges they levied. However, it’s essential to note that a RAC doesn’t speed up the arrival of your refund.

RAC fees typically range from $30 to $50.

Refund Advance Loan (RAL)

Certain fee-based tax preparers might suggest a Refund Advance Loan (RAL), often called a “tax refund advance,” enabling you to receive a part of your expected refund beforehand. When opting for an advance, you borrow money upfront from the preparer. After the IRS issues your refund to the preparer, you get the remaining amount, minus the RAL fee and any other service charges they imposed. Generally, the RAL amount is a portion of your estimated tax refund.

Various tax preparation firms have different policies. Some may offer RALs without fees or interest, while others might charge fees and interest.

It’s crucial to remember that when filing electronically, the IRS typically processes most refunds within 21 days. Thus, paying a substantial RAL fee for a short-term advance might not be worthwhile.

As with any financial product or service, carefully evaluate all fees, charges, and timing factors to make an informed decision that aligns with your financial situation.

Accessing Your Tax Refund Quickly and Securely

If you’re anticipating a refund, consider these points before filing your return:

  • Electronic filing with direct deposit is the swiftest way to receive your refund. Using direct deposit, the IRS typically issues refunds within 21 days. However, refunds via paper checks may take substantially longer, estimated at 4 to 6 weeks by the IRS.
    • If you already have an account with a bank or credit union, ensure you have your account and routing numbers ready when filing your tax return. Provide this information on the tax form, and the IRS will automatically deposit your refund into your account.
    • For those with a prepaid card that accepts direct deposit, you can receive your refund on the card. Before filing your return, confirm with your prepaid card provider to obtain the routing and account number linked to the card.
  • If you don’t currently have a bank account or a prepaid card, it might be worthwhile to consider opening an account or obtaining a prepaid card. Many banks and credit unions provide accounts that have minimal or no monthly maintenance fees, especially if you use direct deposit or maintain a certain balance. These accounts often limit the types of charges you might encounter and may even grant free access to ATMs within their network. Often, you can easily open these accounts via the internet.
  • Tax preparers might suggest having your refunds deposited onto a prepaid card. Keep in mind that the fees associated with these cards can differ significantly depending on the provider. Many cards usually impose fees for using out-of-network ATMs. Therefore, it’s crucial to ascertain if the ATM network offered by the provider is convenient for you before choosing this option.

Beware of Potential Tax Scams!

Scammers often impersonate the IRS to extract personal information. Many individuals have fallen victim to tax scams, resulting in substantial financial losses and compromised personal information. Scammers use various methods like mail, telephone calls, or emails to target individuals, businesses, and tax professionals.

Remember, the IRS doesn’t initiate contact via email, text messages, or social media to request personal or financial details. Learn how to recognize the telltale signs of a scam and make sure you know how to tell if it’s the IRS calling or knocking on your door.

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