One of the primary advantages of tax planning is that you will be well prepared to maximize your income tax refund well before the April 15, 2024, deadline. However, if you have not found the time or resources for extensive income tax planning, you can still review some key deductions and credits to ensure you have the most significant IRS tax refund possible.
Tax planning should ideally be a year-long endeavor. This is because your current income and expenses can have a big impact when the end of 2024 approaches and next year’s 2025 tax season starts to loom. Tax laws and guidelines constantly change, and every year brings a new wave of opportunities – and potential drawbacks – regarding how much of your hard-earned income stays in your pocket.
Therefore, with April 15 less than two months away, consider these tips and strategies to help make your 2023 tax year planning easier while ensuring that you leave no stone regarding credits and deductions unturned.
Itemizing vs Standard Deductions – New Changes that May Make a Difference
One change that went into effect in 2023 and affects a large cross-section of Americans is that both the tax brackets and the standard deductions increased for 2024.
As a result (and especially if you are short on time and/or do not have a lot of individual credits or deductions to account for), this may be the tax season, where you opt for the standardized deduction instead of itemizing.
The Standard Deduction for Tax Season 2023 is as Follows:
- Single: $12,950
- Married filing jointly – $25,900
- Married filing separately – $12,950 – (remember that if you are filing separately, you and your spouse must either take the standard deduction or itemize your deductions.)
- Head of household – $19,400
These amounts are slated to increase again by $1,000 or more for tax season 2024, so it’s something to remember when conducting long-term tax planning.
Medical Expenses
Even if you have health insurance and are only responsible for co-pays, specialist visits, or out-of-network doctor visits, you should take a closer look at your medical expenses, as you may be eligible for a deduction.
Basically, you can deduct any medical expenses that are more than 7.5% of your adjusted gross income. So, if your adjusted gross income for 2023 was $100,000, you can take a deduction for all out-of-pocket expenses above $7,500.
Child Tax Credit
The child tax credit is one of the most popular credits for families, and it allows you to credit up to $2,000 for every dependent child under the age of 17. Just remember that there is an income limit of $400,000 for married couples and $200,000 for individual filers for this credit to apply.
Other Child-related Credits
While the child tax credit gets the bulk of attention when it comes to annual tax returns, there are also other child-related deductions and credits to review. For example, through the child and dependent care credit, you can claim 20-35% of up to $3,000 of the cost of childcare during the past year. For example, daycare or babysitters (or $6,000 for two or more dependents are all eligible.
Inflation Reduction Credits
The Inflation Reduction Act 2022 ushered in several tax breaks worth a closer look. One highlight for homeowners is that home energy efficient credits that expired in 2021 were renewed through the Inflation Reduction Act. Therefore, if you made energy efficient improvements such as new windows, doors, or new installations, you could claim a credit on your upcoming tax return.
Education Credits
Education is another arena of tax law that has had some noticeable changes in the past year, and many of these changes benefit taxpayers. You may be eligible for this tax credit if you have income of $80,000 or less if you file single. Additionally, for married filing jointly the income limit is $160,000 or less.
The American Opportunity Tax Credit is a popular credit that pays for educational expenses for the first four years of college, with a $2,500 credit per student every year.
The lifetime learning credit can be applied to individuals well past the traditional college years. In addition, it’s a similar education credit that relates to all sorts of learning opportunities, like technical classes or expenses for improving job skills. This credit covers up to $2,000 in qualified educational expenses every year. Moreover, you can claim both the American Opportunity Tax Credit and the lifetime learning credit in the same return, but you can’t use both credits for the same student or the same suite of expenses.
In addition, you may also be eligible for an up to $2,500 tax deduction for interest paid on student loans. So, consider all education expenses when you start planning for your annual tax return.
Business Deductions
Business deductions aren’t just for significant company owners – they can often be applied to anyone with self-employment income from freelance work or side jobs (even if you have a second job with an employer and a traditional 1099 form in your return.)
The key is to pay careful attention to these business deductions, as not all apply to every situation. For example, if you’re one of the millions of Americans working remotely from home, you can’t claim the home office deduction if you have an employer. However, the home office deduction may come into play for self-employment income garnered throughout the year.
Discover the Advantages of Tax Planning with Waters Hardy
April 15 may seem a long way away, but the deadline to conduct strategic income tax planning is approaching quickly.
If you haven’t had the time to root through all the tax changes in 2023, all your credits and deductions, and all your income (and how it may be taxed), then now is the time to consult a professional.
At Waters Hardy, we constantly watch the new changes and potential opportunities for our clients when it comes to annual tax returns. Therefore, we can help you craft a strategic plan to maximize your refund this year, next year, and many years to come.
We can discuss different tax strategies to take the weight of income tax planning for 2024 and beyond off your shoulders.