There are many important updates that you should consider before you file taxes this year. Many of these developments may allow you to lower your tax bill. One particularly exciting development is the Energy Efficient Home Improvement Credit, which gives you energy credits for making energy-efficient upgrades to your home. Other significant tax changes include child tax credits, bonus depreciation, standard deductions, and income tax brackets. Businesses and individuals may benefit from these changes this tax season and in subsequent years. Our tax experts offer insights into tax preparation that may help individuals and small businesses lower their tax bills.
What are the Top Tax Changes for 2024
There are many crucial tax law changes that may help individuals and small businesses lower their tax bills. Many of these items, including the child tax and energy efficient home improvement credit, may allow you to receive more deductions when you file taxes.
Businesses are also poised to benefit from tax breaks like bonus depreciation and Section 174. New legislation may expand upon these benefits, providing benefits for small businesses that want to rapidly depreciate certain business expenses. Although bonus depreciation is phasing out, businesses can still claim 60-80% bonus depreciation for assets put into service in 2023 or 2024. Moreover, companies may also receive preferential treatment for experimentation and research expenses.
The IRS has also provided many inflation adjustments for 2024, which may provide some benefits for taxpayers. As a result, you may be able to increase your standard deduction and may even fall into a more favorable tax bracket.
The Child Tax Credit
The child tax credit provides tax incentives for anyone who financially supports a dependent. You can apply for this tax credit if you have one or more dependents and your income is below $200,000 per person. In order to be eligible, you also need to provide more than 50% of the dependent’s income, and the dependent needs to meet criteria set by the IRS.
There may be a lot of changes to child tax credits in the coming years, which could provide more benefits for families.The eligible refundable and non-refundable amounts may increase beginning in 2024. The maximum child tax credit for 2023 is now $2,000, and the refundable portion of this tax credit is $1,600. New changes may also make it easier for lower income families to claim this credit.
Section 174
New changes to the tax laws in 2024 could impact Section 174, which determines how the IRS treats research and experimental expenses when you file taxes. Based on the current laws, businesses can’t deduct experimental and research expenses. Instead, companies have to capitalize and amortize these over a five year period, or a 15 year period if these research expenses were not domestic.
However, the new Tax Relief for American Workers and Family Act may allow small businesses to deduct domestic research and experimental expenses. This new regulation would go into effect until 2026 and allow companies to deduct any domestic research and experimental expenses. Companies that previously amortized these research costs may be able to adjust this by implementing a 481 A adjustment.
Energy Credits
If you made energy friendly updates to your home in 2023, you should make sure that you claim these expenses on your 2023 tax return. Individuals who made qualifying home improvements may be able to recover up to 30% of the cost through the Energy Efficient Home Improvement Credit. There is a credit limit of $1,200-2,000 for certain upgrades, such as energy efficient doors and windows, as well as biomass stoves and boilers. These energy credits may help you save money on your tax bill.
Bonus Depreciation
The Tax Cut and Jobs Act of 2017 changed how small businesses were able to calculate bonus depreciation. According to these changes, bonuses could immediately write off 100% of the costs of certain expenses. However, the full benefits ended in 2023, and businesses may only be entitled to 60% or less bonus depreciation in the coming years. Many of these benefits will begin to phase out, as assets put into service after 2023 may have less favorable depreciation benefits.
There may be new legislation to combat the reduction in benefits. As written, businesses would only be entitled to 60% bonus depreciation for assets placed into service in 2024. After 2024, the eligible amount will decrease by 20% every year. New proposals may change this setback and extend 100% bonus depreciation for 2024 and 2025.
Adjustments for the 2024
The IRS has provided new tax inflation adjustments for the tax year 2024. These adjustments may provide more benefits for taxpayers when they file taxes.
Some of the most significant updates include the following:
- Standard deductions: The standard deduction for married couples rose to $29,200 this year, a $1,500 increase from 2023. The standard deduction for single taxpayers in 2024 is $14,600 for single taxpayers, and $21,900 for the head of the household.
- Maximum earned income tax credit: The maximum earned income tax credit is $7,830, compared to $7,430 in 2023.
- Gifts: The annual exclusions for gifts rose to $18,000, a $1,000 increase.
- Marginal tax rate: The top tax rate is still 37% for individuals with an income above $609,350. Individuals with an income below $47,150 will only have to pay a 12% federal tax rate.
Closing Thoughts on the Tax Preparation
Many individuals and businesses in the United States may benefit from new tax regulations that will provide new benefits for 2023 and subsequent years. It is important to look at recent changes before you file taxes in 2023. Many of these changes are in the works, and may continue in 2024-2026. It may be ideal to talk with an accountant to make sure that you are taking advantage of current tax breaks and stay abreast with developments in future years. Contact us now to get started with a one-on-one strategy session with one of our tax experts.
