Top10 Tax Tips

Tax season is here, and with April 15th swiftly approaching, it’s time to prepare. In “10 Tax Tips 2024,” we offer straightforward advice to help you navigate the process with ease. From maximizing deductions to understanding deadlines, each tip is designed to empower you to make the most of your finances. Let’s embark on this journey together towards a stress-free tax season and financial prosperity in 2024.

The IRS is introducing new and better online tools for taxpayers during the 2024 tax season. These improvements aim to simplify tax filing, bill payment, and safeguard against identity theft. Here are some key highlights:

• Join the IRS Direct File pilot: Eligible taxpayers can file their taxes directly with the IRS for free. This program offers step-by-step guidance and live support to complete federal tax returns using smartphones, tablets, or computers. It’s gradually rolling out in 2024 and should be available to everyone by mid-March.

• Use IRS Free File: Along with the Direct File pilot, the IRS connects taxpayers with guided tax preparation software from trusted partners. Filing online with Free File is free if your adjusted gross income is $79,000 or less. Alternatively, you can find fillable IRS forms on the Free File page.

• Open an online account: By creating an individual online account and verifying your identity, you can set up a PIN for security, make payments, review tax return information, and more.

• Track your refund online: The IRS’s “Where’s My Refund?” tool now offers detailed updates and works seamlessly on mobile devices, allowing you to check your refund status easily.

10 crucial tax tips for the United States

10 crucial tax tips for the United States in 2024 that you should keep in mind:

Tax Tips 1: Tax Bracket Adjustments:

The IRS has modified income thresholds for each tax bracket, influenced by the Consumer Price Index (CPI) to account for inflation. Familiarize yourself with the new marginal tax brackets for 2024 1:

Tax Tips 2: Increased Standard Deductions:

2023 Stander Deduction:

• Single: $13,850
• Married Filing Jointly: $27,700
• Head of Household: $20,800

Most taxpayers opt for the standard deduction instead of itemizing. The standard deduction amounts have increased for 2024:

Tax Tips 3: Higher Alternative Minimum Tax (AMT) Exemption

Ordinary taxpayers receive tax breaks to reduce their income tax burden, while high-income earners face the alternative minimum tax (AMT) to ensure fair taxation. Under AMT, wealthy individuals may lose some deductions and include extra income sources in their calculations, deducting the AMT exemption from their taxable income.

Tax Tips 4 :Maximize Retirement Contributions

Contribute to retirement accounts such as 401(k) or IRA to lower taxable income and benefit from tax-deferred growth and long-term savings.

401(k)

If your employer offers a retirement plan like a 401(k), it’s a smart way to save. With a traditional 401(k), contributions are made pre-tax, allowing tax-deferred growth until retirement withdrawals. Alternatively, a Roth 401(k) involves after-tax contributions but offers tax-free withdrawals in retirement. This option is ideal for those expecting higher tax rates upon withdrawal.

IRA :

An individual retirement account (IRA) presents another avenue to bolster your retirement savings. Unlike the limited investment options in a 401(k) plan, IRAs offer a broader array, including individual stocks, bonds, ETFs, and mutual funds.

Tax Tips 5: Consider a Home Office Deduction

For those working from home, explore the home office deduction by maintaining records of expenses related to the home office setup.

There are two type of home office deduction method

1. Actual Expence method

If you opt for the actual expense method, you can deduct direct expenses, such as painting or repairs solely in the home office, in full. Additionally, indirect expenses like mortgage interest, insurance, home utilities, real estate taxes, and general home repairs, are deductible based on the percentage of your home used for business.

Example:

Let’s break down an example to illustrate how this method works. Suppose you paid $3,000 in mortgage interest, $1,000 in insurance, and $3,000 in utilities (all indirect expenses), along with $500 on a home office paint job (a direct expense) during the year. Your home office occupies 300 square feet in a 2,000-square-foot home, making it eligible for deducting indirect expenses on 15% of your home.

Summary of Deductions:

2.simplified method

If your home office spans 300 square feet or less, and you choose the simplified deduction, the IRS provides a deduction of $5 per square foot of your home used for business, capped at $1,500 for a 300-square-foot area.

Considerations:

Using the simplified method might be more appealing in certain scenarios. For instance, if the difference in deductions between the simplified and actual expense methods is marginal—such as a mere $50—it may not justify the effort of documenting actual expenses. Moreover, the time spent gathering receipts and records should also factor into your decision-making process.

Tax Tips 6:Claim Dependent Care Expenses

If you incur child care or dependent care expenses, investigate tax credits or deductions to potentially increase your refund.

Eligible for a tax credit if they incurred expenses for the care of a dependent child or another qualifying individual. Qualifying individuals include:

• A dependent child under age 13
• A physically or mentally incapable spouse
• An individual physically or mentally incapable of self-care who lived with the taxpayer for more than half of the year and met certain dependency criteria.

Tax Credit Calculation:

Unlike deductions, tax credits directly reduce one’s tax liability on a dollar-for-dollar basis. The credit is a percentage of the work-related expenses paid for child or dependent care, ranging from 20% to 35% depending on the taxpayer’s earned income and adjusted gross income (AGI). The credit begins to phase out if the AGI exceeds $15,000 [3].

Summary of Maximum Credit:

In order to claim the credit, it’s necessary to fill out Form 2441 and attach it to your Form 1040 when filing your taxes. Additionally, you must furnish a valid taxpayer identification number (TIN) for each qualifying individual, typically their Social Security number.

Tax Tips 7:Stay Organized and Prepare Early

Collect all relevant documents, including W-2s, 1099s, and receipts, well in advance of the filing deadline to simplify the tax filing process.

The Taxpayer First Act, enacted in 2019, introduced changes to the electronic filing requirements for W-2s with the Social Security Administration (SSA). Under this act, effective from the 2023 tax year, employers are mandated to file W-2s and 1099s by January 31, 2024. Notably, employers who submit a total of 10 or more of these forms are obligated to file them electronically. It’s important to highlight that both W-2s and 1099s count towards meeting the 10-form threshold.

Suppose you have a combination of eight W-2s and two 1099s to file; in this case, both form types must be electronically filed since you’ve met the 10-form threshold. If you’re unsure about how to prepare for e-filing this year and need guidance, feel free to reach out, and we can assist you in devising a plan. Additional information on electronic filing requirements for Forms W-2 can be accessed here.

Tax Tips 8:Make Estimated Tax Payments

Anticipating owing taxes? Consider making estimated payments to avoid penalties and interest by paying on time.

Individuals, such as sole proprietors, partners, and S corporation shareholders, are typically required to make estimated tax payments if they anticipate owing $1,000 or more when their tax return is filed. Similarly, corporations must make estimated tax payments if they expect to owe $500 or more upon filing their return.

Moreover, if your tax liability was greater than zero in the previous year, you might need to pay estimated tax for the current year. For further clarification on who is obligated to pay estimated tax, refer to the worksheet in Form 1040-ES, Estimated Tax for Individuals.

More detail information on Estimated Tax Payments

Tax Tips 9:Explore Tax Credits and Deductions

Research available tax credits (e.g., child tax credit, education credits) and deductions to further decrease your tax liability. For child tax credit read the point No 6.Claim Dependent Care Expenses:

Education Tax Credits:

• 1.Payment of Qualified Education Expenses:
  • You, your dependent, or a third party must cover qualified education expenses for higher education.
• Enrolment at Eligible Educational Institution:
  • The eligible student must be enrolled at an eligible educational institution.
• Eligible Student Criteria:
  • The eligible student can be yourself, your spouse, or a dependent listed on your tax return.

For more information rerad : Education Credits–AOTC and LLC

Tax Tips 10 : Stay Informed About Tax Law Changes

Keep abreast of updates in tax laws or regulations to ensure accurate and efficient tax filing.

Changes to Credits and Deductions for Tax Year

1. Standard Deduction Increase:

• Single or married filing separately: $13,850
• Head of household: $20,800
• Married filing jointly or qualifying surviving spouse: $27,700

2. Additional Child Tax Credit:

• Maximum amount increased to $1,600 per qualifying child.

3.Child Tax Credit Enhancements:

• Enhanced credit for qualifying children under age 6 and children under age 18 has expired.
• Initial CTC amount: $2,000 per qualifying child.
• Phase-out begins at AGI income exceeding $200,000 ($400,000 for joint returns).
• Maximum refundable ACTC amount per qualifying child increased to $1,500.

4.Earned Income Tax Credit (EITC):

• Enhancements for taxpayers without a qualifying child do not apply for tax year 2023.
• Age requirement: Taxpayers must be at least age 25 but under age 65 at the end of 2023.

5.New Clean Vehicle Credit:

• Formerly known as the credit for new qualified plug-in electric drive motor vehicles.
• Reported on Form 8936 and Schedule 3 of Form 1040.

6.1099-K Reporting Requirements:

• No changes for tax year 2023.
• Notice 2023-74 announces a delay of the new $600 reporting threshold on Form 1099-K.
• Previous reporting thresholds remain in place for 2023.

For Details information : Tax Time Guide 2024: What to know before completing a tax return