IN THIS ISSUE
DID YOU KNOW?
- The Ongoing Impact of the Tax Cuts and Jobs Act (TCJA)
- Updates to Retirement Plan Contributions and Distributions
- Inflation-Adjusted Tax Brackets and Standard Deductions: What’s New for 2024?
- State and Local Tax (SALT) Deduction Limitations
- Employee Retention Credit (ERC) Phase-Out
- Form 1099-K Reporting Requirements
- Increased IRS Enforcement and Audits
Key Tax Law Changes for the 2025 Filing Season
by Audrey Jackson
Did You Know?
With tax season on the horizon, taxpayers encounter a mix of ongoing and emerging challenges. Keeping up with the latest tax laws and regulations is essential for optimizing your tax refund or reducing your tax liability. This detailed guide will cover the most impactful changes for the 2024 tax year and offer practical tax preparation tips to help you confidently navigate this evolving landscape.
The Ongoing Impact of the Tax Cuts and Jobs Act (TCJA)
Enacted in 2017, the Tax Cuts and Jobs Act (TCJA) introduced substantial changes to the tax code. While some provisions have expired, several key elements still affect taxpayers in the 2024 tax year. Here’s what to keep in mind:
- Corporate Tax Rate Reduction: The reduction of the corporate tax rate from 35% to 21% continues to benefit businesses by significantly lowering their tax liabilities.
- Individual Tax Brackets and Standard Deduction: The TCJA expanded individual tax brackets and increased the standard deduction, providing tax relief for many. These provisions remain in effect for 2024, helping to reduce tax bills for a broad range of taxpayers.
- Pass-Through Entity Deduction: Owners of pass-through entities, such as sole proprietorships, partnerships, and S corporations, may still qualify to deduct up to 20% of their qualified business income. This valuable deduction can substantially lower your taxable income
Updates to Retirement Plan Contributions and Distributions
The SECURE 2.0 Act, enacted in 2022, introduced several notable changes to retirement plans that will impact taxpayers in 2024:
- Increased Contribution Limits: Higher contribution limits for 401(k) and IRA plans allow you to save even more for retirement, enhancing your long-term financial security.
- Required Minimum Distribution (RMD) Adjustments: The starting age for RMDs will increase from 72 to 73 in 2024 and is set to rise to 75 in the future. This change provides greater flexibility in managing your retirement withdrawals.
- Catch-Up Contributions: The age requirement for making catch-up contributions to retirement plans has been adjusted, allowing older workers to more easily boost their retirement savings as they approach retirement age.
Inflation-Adjusted Tax Brackets and Standard Deductions: What’s New for 2024?
The IRS annually adjusts tax brackets and standard deductions to keep pace with inflation, and 2024 is no different. These adjustments affect tax liability by altering income thresholds for each tax bracket and increasing standard deduction amounts, potentially lowering your overall tax bill. Here’s a breakdown of the key changes for the 2024 tax year.
Tax Brackets: For 2024, income thresholds for each tax bracket have increased. For instance, single filers now enter the 24% tax bracket at $95,375, up from $89,075 in 2023. For married couples filing jointly, the 24% bracket begins at $190,750, compared to $178,150 in 2023. These adjustments mean that more of your income could be taxed at a lower rate, potentially reducing your overall tax liability.
Standard Deduction: The standard deduction has been increased to reflect inflation. In 2024, the standard deduction for single filers is $14,600, up from $13,850 in 2023. For married couples filing jointly, it has risen to $29,200, up from $27,700 in 2023. These increases allow taxpayers to reduce their taxable income by a larger amount, particularly benefiting those who do not itemize deductions.
These inflation adjustments help prevent “bracket creep,” where inflation pushes taxpayers into higher tax brackets without an actual increase in purchasing power. Staying informed about these changes enables you to better anticipate your tax liability and make strategic decisions regarding withholding, estimated tax payments, and other planning considerations. Always check the latest IRS updates or consult a tax professional to see how these changes specifically affect your situation.
State and Local Tax (SALT) Deduction Limitations
The Tax Cuts and Jobs Act (TCJA) placed a cap on the SALT deduction, limiting the amount you can deduct for state and local taxes. This restriction has a notable impact on taxpayers, especially those in high-tax states. However, there are strategies to lessen the impact of this limitation, such as bunching deductions into one tax year or exploring alternative tax credits. Consulting with a tax professional can provide tailored guidance to help you manage these challenges effectively.
Employee Retention Credit (ERC) Phase-Out
The Employee Retention Credit (ERC), a refundable tax credit designed to support businesses in retaining employees during the COVID-19 pandemic, is scheduled to phase out in 2024. If your business has not yet claimed the ERC, it’s crucial to review the eligibility criteria and upcoming deadlines to ensure you take advantage of this valuable credit before it expires.
Form 1099-K Reporting Requirements
The American Rescue Plan Act reduced the reporting threshold for gross receipts from third-party payment platforms like Venmo and PayPal on Form 1099-K. As a result, more individuals are now required to report income received through these platforms. If you’ve received payments via these services, it’s essential to understand your reporting obligations to ensure compliance and avoid potential penalties.
Increased IRS Enforcement and Audits
The IRS has announced plans to intensify enforcement efforts and increase audits in the coming years. To reduce your audit risk, consider the following steps:
Maintain Accurate Records: Keep comprehensive and organized records of all your income, deductions, and credits to substantiate your tax filings.
File on Time: Submit your tax returns by the deadline to avoid penalties and interest charges.
Double-Check Your Returns: Ensure accuracy by thoroughly reviewing your tax returns for any errors or omissions, helping to minimize issues with the IRS.
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