6 Tax Changes Every Filer Needs To Know About Before Year End

Tax season might not be everyone's favorite time of year, but it's definitely a crucial one. The tax filing deadline for 2024 (for the 2023 tax year) is April 15th, with an extension deadline of October 15th for those needing more time. There were several tax changes in 2023 that could impact your tax return next year and you need to be aware of each one. Here is what you need to know.

1. Tax brackets adjustment

Income tax brackets were adjusted in 2023 to accommodate inflation. For the 2023 tax year, these brackets have increased slightly. Understanding how these brackets work is important, with different portions of your income taxed at different rates. Let's take a look at how the brackets look for the 2023 taxes (filed by April 15, 2024). 

Tax brackets for the 2023 tax year

• 10% for income up to $11,000 (single), $22,000 (married filing jointly), $15,700 (head of household), and $11,000 (married filing separately).
• 12% for income between $11,000 and $44,725 (single), $22,000 and $89,450 (married filing jointly), $15,700 and $59,850 (head of household), $11,000 and $44,725 (married filing separately).
• 22% for income between $44,725 and $95,375 (single), $89,450 and $190,750 (married filing jointly), $59,850 and $95,350 (head of household), $44,725 and $95,375 (married filing separately).
• 24% for income between $95,375 and $182,100 (single), $190,750 and $364,200 (married filing jointly), $95,350 and $182,100 (head of household), $95,375 and $182,100 (married filing separately).
• 32% for income between $182,100 and $231,250 (single), $364,200 and $462,500 (married filing jointly), $182,100 and $231,250 (head of household), $182,100 and $231,250 (married filing separately).
• 35% for income between $231,250 and $578,125 (single), $462,500 and $693,750 (married filing jointly), $231,250 and $578,100 (head of household), $231,250 and $346,875 (married filing separately).
• 37% for income over $578,125 (single), over $693,750 (married filing jointly), over $578,100 (head of household), and over $346,875 (married filing separately).

2. 1099-K changes are incoming

Those engaged in online selling or making cash from home should be aware of changes related to 1099-K forms. While policies were initially set to impact 2024, they have been delayed. For now, a 1099-K form is required if you have over 200 third-party business transactions totaling more than $20,000. 

For example, if you have an Etsy store and sold under 200 products in 2023, you will not need a 1099-K form. If you have any kind of personal business and have sold more than 200 products (this includes transactions for services as well),) you will need to fill out a 1099-K form.

Retirement plan updates

Be aware of these changes before making any retirement planning moves. Significant changes and inflation adjustments to retirement plans affect 401(k)s, IRAs, and more. Contribution limits for 401(k)s and IRAs have increased to account for inflation.

3. 401(k) and IRA contribution limits increase

In 2023, the contribution limits for 401(k)s and IRAs were raised, providing individuals with more opportunities to save for retirement. The 2023 tax season 401(k) contribution limit is $22,500, up from $20,500 in 2022.

The 401(k) contribution limit for the 2024 tax year will be $23,000 for employee contributions and $69,000 for the combined employee and employer contributions.

4. Income limits increase for Roth IRA contributions

The income limits for Roth IRA contributions have also increased, allowing more individuals to contribute to these retirement accounts. The IRA (to both traditional and Roth) contribution limits for the 2023 tax year are $6,500 for those under age 50 and $7,500 for those 50 and older, up from $6,000 and $7,000, respectively, from 2022. 

For 2024, the IRA contribution limits will be $7,000 for those under age 50 and $8,000 for those age 50 or older.

5. Deduction limits increase for traditional IRA contributions

The phase-out limits for deducting traditional IRA contributions have increased, offering more favorable assumptions for those with varying income levels. “Phase-out” means a certain income level disqualifies you from contributing to IRAs once you hit it. 

Roth IRA phase-out range has increased for the 2023 tax year to between $146,000-$161,000 (up from $129,000-$144,000 in 2022) for singles and those filing head of household, an increase from $138,000-$153,000 in 2023. Traditional IRA income limit ranges for those covered by a workplace retirement plan begin at $77,000 and end at $87,000 — up from $73,000 and $83,000, respectively, in 2023.

6. Standard deduction increase

The standard deduction for the 2023 tax year increased slightly to $13,850 for single filers and married couples filing separately. For single heads of household, generally unmarried with one or more dependents, the standard deduction increased to $20,800 for the 2023 tax year. For married couples filing jointly, the standard deduction rises to $27,700. These deductions represent an inflation adjustment after a year marked by high prices and interest rates.

Tax deductions to consider

While the standard deduction will be right for most tax filers, certain deductions and credits might make it worth it to itemize instead. There are several deductions and credits, each catering to different eligibility criteria. None of these are new to your 2024 taxes but they are often forgotten. It's important to see if these deductions might make it worth not taking the standard deduction. 

• Charitable Deductions: If you've made charitable contributions, you can deduct them when you itemize your deductions.
• Medical Deductions: Medical expenses above 7.5% of your adjusted gross income (AGI) can be deducted if you itemize your deductions.

• Business Deductions: Self-employed individuals can claim various deductions, including those related to travel expenses and the home office deduction (for those not working remotely).

Bottom line

As we gear up for the 2023 tax season, we must stay informed about these changes and plan accordingly. If you find the tax landscape overwhelming, seeking guidance from a tax professional can be wise. Remember, a well-informed tax approach can lead to smoother and lower financial stress during tax season.