top of page

Understanding 2024 Tax Updates

Updated: Jan 9

As tax season approaches, it’s crucial for individuals to be well-prepared to navigate the changing landscape. Whether you are a seasoned Monotelo client, or this is your first year with us, understanding key aspects of the tax process can help ensure a smooth and stress-free experience.


Here are some essential things people need to know before tax season:


Key Takeaways

  • Tax filing deadline: April 15, 2024

  • Extension deadline: October 15, 2024

  • The standard deduction for all filing statuses increased in 2023

  • The tax brackets increased in 2023

  • The Net Investment Income tax and threshold have not changed

  • Electric Vehicle Credits and Home Energy Credits were expanded


Income Brackets and Rates for the 2024 Tax Season

Your tax rate is based on what income range you are in. As your income rises, the income above each bracket is taxed at the next marginal rate. For example, if you’re married and file a joint return with your spouse, and your taxable income is $175,000, then you are in the 22% tax bracket. But that doesn’t mean your tax rate is a flat 22%. Instead, $22,000 is taxed at 10%, $67,450 is taxed at 12%, and the balance is taxed at 22%.

 

The tax brackets for 2023 (filed in 2024):



Higher Standard Deductions

When you file your taxes, you have the option to take the standard deduction or to itemize your deductions. We will itemize and file a Schedule A with your 1040 when the sum of the itemized deductions is greater than the standard deduction.


For the 2024 tax season, the standard deduction was also adjusted for inflation:

 


Net Investment Income Tax

The net investment income tax (NIIT) of 3.8% remains the same, and so does the income threshold. The NIIT is a surtax that is paid in addition to regular income taxes on investment income. However, not everyone who has investment income is impacted. The NIIT only applies to incomes that are above the thresholds highlighted below.

 


Tax Deductions Vs. Tax Credits

Tax credits are more valuable than tax deductions, because they are direct dollar amounts that reduce the amount of tax you owe to the IRS. A refundable credit can even cause you to get a refund if the credit is greater than the amount of tax you owe.

 

Tax deductions help lower the amount of income that will be subject to tax. Some deductions are only available if you itemize, while others are available even when you take the standard deduction.

 

Here are some potential deductions and credits you may be able to claim on your tax return this year.


Electric Vehicle Credits

Requirements for $7,500 credit for new clean vehicle purchased in 2023

  • Suggested retail price for vans, SUVs and truck cannot exceed $80,000

  • Suggested retail price for other vehicles cannot exceed $55,000

  • Income thresholds apply to this credit:

    • $300,000 for Married couples filing a joint return

    • $225,000 for Heads of Household

    • $150,000 for all other filers

  • Taxpayers who transferred this credit to the dealer will have to repay the tax when they file their 1040 if their income is above the threshold

  • One work-around for taxpayers above the threshold is to add another person to the title who is below the threshold and apply the credit to their return.

 

Requirements for $4,000 credit for used clean vehicle purchased in 2023.

  • The credit is $4,000 or 30% of the purchase price, whichever is lower

  • Sale price of the used vehicle is limited to $25,000 (good luck with that one!)

  • The qualifying vehicle must be at least two years old

  • Purchase must be made through a dealer

  • Income thresholds apply to this credit:

    • $150,000 for Married couples filing a joint return

    • $112,500 for Heads of Household

    • $75,000 for all other filers

 

Up to $40,000 is available for qualifying Commercially Owned Vehicles. If you are a business owner, please reach out to Monotelo to discuss this option.

 

Energy Efficient Home Improvement Credits

  • Up to 30% of the amount paid for by taxpayer for qualifying energy improvements

  • Annual limit of $1,200

  • Available on second homes/vacation homes

 

A few more deductions and credits to be aware of:

  • Charitable Deductions - Charitable contributions are deductible when you choose to itemize and donate to qualified organizations. The limit for charitable deductions is 60% of your adjusted gross income (AGI). Your AGI is your total income minus other deductions you’ve already taken

  • Medical Deductions - You can deduct any medical expense above 7.5% of your adjusted gross income (AGI). For example, if your AGI was $100,000, you can deduct out-of-pocket medical expenses above $7,500. But you can only take this deduction when you itemize, as this number gets added to the rest of your itemized deductions.

  • Business Deductions - If you work remotely, you cannot claim the home office deduction. However, if you have self-employment income (if you were issued a 1099 as an independent contractor), then there are a number of deductions you can claim on your tax return—including phone, internet, travel, home office, etc. if you use your home office for business purposes.

  • Child Tax Credits - The child tax credit provides a $2,000 credit per dependent child under the age of 17. The income limit is $400,000 for married filing jointly and $200,000 for all others. The child tax credit is also partially refundable up to $1,600

  • Child and Dependent Care Credits - The child and dependent care credit is a nonrefundable credit that allows taxpayers to offset some of the costs of paying for day care, babysitters and in-home caregivers for older dependents - up to $3,000 ($6,000 for two or more dependents) for the cost of care.

  • Education Credits - There are three educational credits available to taxpayers, and they phase out at different income thresholds.

    • The American opportunity tax credit (AOTC) is a partially refundable credit that pays for education expenses for students in the first four years of college. This credit is up to $2,500 per student, with $1,000 of it being refundable. 

    • The Lifetime Learning Credit (LLC) covers up to $2,000 in qualified educational expenses per return. The Lifetime Learning Credit applies to a wide range of educational opportunities—from degree programs to technical classes to improving job skills. You can claim both the AOTC and the LLC on your tax return — but not for the same student or the same expenses.

    • You may also be eligible for a tax deduction up to $2,500 for interest paid on student loans.


Return Status

Once your return has been filed, you can always check the status of your federal tax refund through the IRS website, www.irs.gov/refunds

Please note that these are general guidelines, and specific circumstances may apply to your individual or business situation. If you have any questions or are ready to get started on your 2023 tax return, click here to UPLOAD YOUR DOCUMENTS or SCHEDULE A MEETING at your convenience.


This article is a general communication being provided for informational and educational purposes only and is not meant to be taken as tax advice, investment advice or a recommendation for any specific investment product or strategy. The information contained herein does not take your financial situation, investment objective or risk tolerance into consideration. Readers, including professionals, should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific legal, accounting or tax advice from their own counsel. Any examples are hypothetical and for illustration purposes only. All investments involve risk and can lose value, the market value and income from investments may fluctuate in amounts greater than the market. All information discussed herein is current only as of the date of publication and is subject to change at any time without notice. Forecasts may not be realized due to a multitude of factors, including but not limited to, changes in economic conditions, corporate profitability, geopolitical conditions, inflation or US tax policy. This material has been obtained from sources believed to be reliable, but its accuracy, completeness and interpretation cannot be guaranteed.


LEGAL, INVESTMENT, AND TAX NOTICE. This information is not intended to be and should not be treated as legal, investment, accounting or tax advice.

PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.

 

Copyright 2024. Monotelo Advisors Inc. All Rights Reserved

845 views0 comments

Comentarios


bottom of page