Credit Sesame explains the new tax rules for 2024 and how they may impact your tax bill, deductions, and tax credits.
Tax laws evolve every year, and 2024 is no exception. Understanding the latest updates can help you maximize your refund, reduce your tax bill, and plan smarter for the future. The 2024 tax year filing is due April 15, 2025, the IRS deadline for most taxpayers.
Standard deduction increases
The IRS has raised the standard deduction for the 2024 tax year to adjust for inflation. The new amounts are:
- Single filers: $13,850 (up from $13,850 in 2023)
- Married filing jointly: $27,700 (up from $27,700 in 2023)
- Head of household: $20,800 (up from $20,800 in 2023)
If you don’t itemize deductions, this increase means you can reduce your taxable income by a higher amount, potentially lowering your overall tax liability.
Expanded child tax credit
The child tax credit remains at $2,000 per eligible child, but for 2024, a larger portion—up to $1,600—is refundable, meaning you may receive a refund even if you owe no tax. This change may benefit lower-income families who previously couldn’t claim the full credit.
Adjusted income tax brackets
For 2024, tax brackets have been adjusted to reflect inflation. While tax rates remain the same, income thresholds have increased slightly, reducing the impact of bracket creep and potentially lowering tax bills for some filers. If you received a raise in 2024, this adjustment may help offset the tax impact.
Retirement contribution limits increase
The IRS has increased contribution limits for 2024, allowing individuals to save more on a tax-advantaged basis. The new limits are:
- 401(k) contributions: $23,000 (up from $22,500 in 2023)
- IRA contributions: $7,000 (up from $6,500 in 2023)
- Catch-up contributions (age 50+): $7,500 for 401(k)s, $1,500 for IRAs
Maximizing contributions can lower your taxable income while boosting your retirement savings. If you’re expecting a tax refund, consider putting a portion into an IRA to maximize tax advantages.
Changes to itemized deductions
Some deductions have been modified for 2024:
- Medical expense deduction: The threshold remains at 7.5% of AGI, meaning expenses exceeding this amount can still be deducted.
- State and local tax (SALT) deduction: The $10,000 cap remains in place, though there is ongoing debate about potential changes in future tax years.
Increased capital gains tax threshold
Long-term capital gains tax rates remain the same, but income thresholds have been adjusted for 2024. This means some investors may qualify for a lower tax rate on their investment earnings compared to last year. If you sold investments in 2024, your tax filing will use these updated thresholds.
Energy tax credits for homeowners
New tax credits are available for homeowners making energy-efficient improvements. The Energy Efficient Home Improvement Credit allows for a credit of up to $3,200 for qualifying home upgrades, such as solar panels, heat pumps, and insulation. If you made qualifying improvements in 2024, you can claim credits on your current return.
How tax filing impacts your credit
Filing your taxes can have a direct impact on your credit and financial well-being. While your tax return itself doesn’t appear on your credit report, unpaid tax bills can lead to financial strain and even collection actions. If you owe taxes and don’t pay by the deadline, the IRS may file a tax lien, possibly making it harder to qualify for loans and credit cards. Additionally, if you receive a tax refund, using it strategically—such as paying down debt or building an emergency fund—can improve your credit score and overall financial stability.
What these changes mean for you
Depending on your financial situation, these tax updates may lower your tax liability or increase your refund. To maximize your benefits:
- Review your deductions and credits carefully
- Adjust your withholdings or estimated tax payments
- Consider maximizing retirement contributions
- Plan ahead for any investment-related tax implications
- Use tax savings wisely to reduce debt and improve your credit profile
Stay informed about the latest IRS guidelines if you’re filing your 2024 taxes by April 15, 2025. Understanding these updates can help you make informed financial decisions, whether maximizing deductions, reducing taxable income, or planning for the future. Taking proactive steps can put you in a stronger financial position for next year’s tax season.
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Disclaimer: The article and information provided here are for informational purposes only and are not intended as a substitute for professional advice
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