2024 Tax Law Changes: What You Need to Know Before Filing
Tax laws are ever-evolving, and staying informed about changes is essential to make the most of deductions, credits, and other benefits. As we gear up for the 2024 year-end tax season, it’s important to review key updates at both the federal and state levels that could impact your filing.
In Week 3 of our 6-part series on preparing for the 2024 year-end tax season, we’re breaking down the most significant changes in tax laws that individuals and small businesses need to know. Understanding these updates can help you plan ahead and ensure a smooth filing process.
Federal Tax Law Updates for 2024
1. Standard Deduction Increases
The IRS has increased the standard deduction for 2024 to account for inflation.
Single Filers: $14,600 (up from $13,850 in 2023).
Married Filing Jointly: $29,200 (up from $27,700 in 2023).
Head of Household: $21,900 (up from $20,800 in 2023).
Impact: Taxpayers who take the standard deduction will see a modest reduction in taxable income, potentially lowering their tax liability.
2. Changes to Tax Brackets
Tax brackets have been adjusted for inflation. The tax rates remain the same, but the income thresholds for each bracket have increased, meaning more income may be taxed at lower rates.
Example: The 22% tax bracket for single filers now applies to incomes between $47,150 and $100,525 (up from $44,725–$95,375 in 2023).
Impact: These adjustments may help reduce the overall tax burden for many taxpayers, especially those with incomes near the threshold of a lower bracket.
3. Expanded Retirement Savings Opportunities
The contribution limits for retirement accounts have increased, providing greater opportunities for tax-deferred or tax-free savings.
401(k): The maximum contribution is now $23,000 (up from $22,500).
IRA: The limit has increased to $7,000 (up from $6,500).
Catch-Up Contributions: For those aged 50 and older, the catch-up contribution limit for 401(k)s is $7,750, allowing a total of $30,750.
Impact: Higher limits mean you can save more for retirement while reducing your taxable income.
4. Energy-Efficient Home Credits Expanded
The Residential Clean Energy Credit, which allows deductions for solar panels, wind turbines, and energy-efficient windows or appliances, has been extended and expanded under the Inflation Reduction Act.
Impact: Homeowners who invest in qualifying energy-efficient improvements can receive up to a 30% credit on their investment.
5. Child Tax Credit and Earned Income Tax Credit Updates
While the expanded pandemic-era child tax credit has not been reinstated, income thresholds for claiming the Earned Income Tax Credit (EITC) have increased slightly for 2024.
Impact: Low- to moderate-income families may qualify for a larger EITC, reducing their overall tax burden.
Ohio State Tax Law Updates for 2024
For Ohio residents, several changes at the state level could influence your 2024 tax return.
1. Reduced Income Tax Rates
Ohio has continued its trend of lowering individual income tax rates. Rates have decreased slightly across all brackets, providing modest savings for most taxpayers.
2. Expanded Deduction for Small Businesses
Ohio’s Business Income Deduction allows small business owners to deduct up to $250,000 of business income from state taxes. Recent updates have clarified eligibility for gig workers and sole proprietors.
3. New Electric Vehicle (EV) Credit
Ohio has introduced a state-level credit for the purchase of qualifying electric vehicles, supplementing federal EV incentives.
How These Changes Affect You
For Individual Taxpayers
Higher Standard Deduction: More people may find it advantageous to take the standard deduction instead of itemizing.
Bracket Adjustments: You may pay slightly less in federal taxes if your income falls near a bracket threshold.
Increased Credits: Families, especially those with dependents or energy-efficient home improvements, can benefit from expanded credits.
For Small Businesses
Higher Section 179 Limits: Expanded limits allow for greater deductions on equipment and asset purchases.
Ohio Business Deduction: Small business owners in Ohio can deduct more of their income, making the state even more favorable for entrepreneurs.
Retirement Planning: Owners can contribute more to retirement plans for themselves and employees, reducing taxable income.
Actionable Steps to Take Now
Review Your Income and Withholdings: Ensure you’re withholding enough taxes, especially if you received raises or bonuses in 2024. Adjustments now can prevent surprises later.
Contribute to Retirement Accounts: Maximize your contributions to take full advantage of the increased limits.
Plan for Energy Credits: If you’ve made or plan to make energy-efficient home upgrades, gather receipts and documentation.
Consult a Tax Professional: Complex changes in tax laws can make filing challenging. A tax preparer can help you navigate updates and ensure compliance while maximizing your benefits.
Final Thoughts
Understanding the latest tax law changes is crucial for effective planning and preparation. Whether you’re adjusting your retirement contributions or leveraging new credits, these updates provide opportunities to save money and optimize your tax strategy.
At On Target Tax Services, we stay on top of all tax law changes to provide our clients with accurate, up-to-date guidance. Contact us today to learn how these updates impact you and how we can help you prepare for a stress-free 2024 year-end tax season.
Stay tuned for Week 4 in our series, where we’ll explore “Are You Withholding Enough? Adjustments to Make Before the Year Ends.”
