7 Tax Credits & Deductions to Know About This Year 

Updated on 02/16/2024

7 Tax Credits & Deductions to Know About This Year 

Taxes can be complicated, but here’s a breakdown of the latest changes so you can get the most out of your tax return. Whether it’s about getting some extra cash back with tax credits or understanding how you can pay less tax with deductions, we’ve got you covered.

It’s crucial for taxpayers to stay informed about the latest tax credits and deductions, ensuring they leverage every opportunity to optimize their tax returns. From the expanded Earned Income Tax Credit (EITC) to the evolving landscape of the Child Tax Credit, understanding these changes is key to efficient tax planning and filing.

Changes to the Income Tax Brackets

First, you should know that the income tax brackets shifted a bit. This is normal; they often change to reflect changes in cost of living. There are still seven tax rates, but each rate’s income ranges (tax brackets) have shifted slightly to account for inflation. 

For the 2023 tax year (returns filed in 2024), the following rates and income ranges apply:

Tax rate Single filersMarried couples filing jointly (and qualifying widows or widowers)
10% $0 to $11,000$0 to $22,000
12%$11,001 to $41,725$20,001 to $89,450
22% $44,726 to $95,375$89,451 to $190,750
24%$95,376 to $182,100$190,751 to $364,200
32% $182,101 to $231,250$364,201 to $462,500
35% $231,251 to $578,125$462,501 to $693,750
37% $578,126 or more$693,751 or more

Lowering Your Taxable Income & Boosting Your Tax Return

Think of tax deductions like discounts that lower how much of your income can be taxed. This means you pay less in taxes. These “discounts” come from spending money on things like giving to charity, paying interest on your home loan, or business costs.

Tax credits are even cooler because they directly cut down how much tax you owe, dollar for dollar. So, if you owe $1,000 in taxes and get a $200 tax credit, now you only owe $800. 

Unlike deductions that lower your taxable income, credits can straight-up reduce your tax bill or make your refund bigger. Let’s check out some updates to these deductions and credits that people often use.

1. Standard Deduction 

Imagine the standard deduction as a one-size-fits-all discount on your taxes. The government says, “Hey, we’ll let you reduce your taxable income by this set amount, no questions asked.”

People often go for the standard deduction because it’s easy and guaranteed. You don’t need to keep track of all your expenses or fill out extra forms. It’s like choosing a pre-set meal at a restaurant instead of picking each dish individually — quicker and simpler.

For tax year 2023, which you’ll most likely file by April of 2024, the standard deduction amounts increased to:

  • $27,700 if married filing jointly or qualifying surviving spouse (increase of $1,800)
  • $20,800 if head of household (increase of $1,400)
  • $13,850 if single or married filing separately (increase of $900)

For the 2024 tax year (which Americans will file in the year 2025),, the standard deduction amounts are set to increase to:

  • $29,200 if married, filing jointly or qualifying surviving spouse (increase of $1,500)
  •  $21,900 if head of household (increase of $1,100)
  • $14,600 if single or married filing separately (increase of $750)

Most people go with the standard deduction because it’s less hassle and still offers a decent tax break. Choosing to itemize, on the other hand, is like saying, “I think I spent enough on specific things (like mortgage interest, charity donations, or medical expenses) that, if I add them all up, they’ll give me a bigger tax break than the standard deduction.” 

It takes more work because you need to prove all those expenses, but it can pay off if your total is higher than the standard deduction.

Earned Income Tax Credit (EITC) Expansion

The EITC is like a bonus for working and self-employed taxpayers, especially if they have kids. It helps by lowering the amount of tax you owe, and it might even score you a refund. 

If you’re in the running for the EITC in 2023, here’s what you could get:

  • $600 if you don’t have any kids.
  • $3,995 if you’ve got one kid in tow.
  • $6,604 if you’re juggling two kids.
  • $7,430 if you’re managing a crew of three or more kids.

How much money you can make and still get the EITC depends on how you file your taxes and how many kids are depending on you. For example, if you’re married and filing together, and you have three or more kids, you can earn up to $63,698 and still qualify for the EITC.

2. Child Tax Credit (CTC) Adjustments

Think of your kid as a tax write off (as well as a black hole for money). The Child Tax Credit has undergone several modifications in recent years aimed at providing additional support to families. The structure for the 2023 tax year:

  • Up to $2,000 for each qualifying child under 17
  • Nonrefundable, but certain taxpayers could get back up to $1,600 of it as a partial refund via the additional child tax credit when they file their taxes in 2024
  • The amount you can get from this credit starts to go down if your modified adjusted gross income is more than $400,000 (married couples filing together) or $200,000 (for other tax filing statuses)

The Tax Relief for American Families and Workers Act of 2024, a bipartisan bill introduced on January 16, proposes temporary changes and expansions to the CTC. The House of Representatives approved the bill on January 31, and it’s now on its way to the Senate for review. 

While the specifics of the CTC may continue to evolve, staying informed through a trusted tax professional can help you navigate these changes and understand how they impact your tax return.

3. Home Office Deduction: A Sign of the Times

With the shift towards remote work, the home office deduction has become more relevant than ever. The IRS provides two methods for calculating the home office deduction: the simplified option and the regular method. 

  • The simplified option, introduced in 2013, allows taxpayers to calculate their deduction at a standard rate of $5 per square foot of the home used for business, with a maximum of 300 square feet, equating to a maximum deduction of $1,500.
  • The regular method involves calculating the actual expenses of your home office space, including a portion of utilities, mortgage interest, insurance, maintenance, and depreciation. This method requires more detailed record-keeping and calculation.

It’s important to check the latest IRS guidelines or consult with a tax professional for the most current information, as tax laws and deduction rates can change.

4. The Employee Retention Credit (ERC) Tax Credit

Originally introduced as part of COVID-19 relief measures, the ERC tax credit encouraged businesses to keep employees on their payroll during challenging economic times. Companies can continue to apply for the ERTC, but proposed legislation might terminate the employee retention tax credit, effective retroactively from January 31, 2024.

However, various deductions and credits for businesses, including those related to depreciation, business meals, and research and development expenses, may have seen inflation adjustments.

5. Retirement Savings Contributions Credit (Saver’s Credit) 

The “saver’s credit” is like a reward from the government for putting money into your retirement account. It can reduce your taxes by up to $1,000 or $2,000 if you’re married and file taxes together. To qualify, you need to:

  • Be at least 18 years old.
  • Not be a full-time student.
  • Not be listed as a dependent on someone else’s tax form.
  • Earn below certain amounts, depending on how you file your taxes:
    • o   $73,000 for couples filing together.
    • o   $54,750 if you’re the head of your household.
    • o   $36,500 for most other tax filers.

This credit looks at the amount you add to your retirement savings, like in a 401(k), IRA (both traditional and Roth), or other specific retirement accounts. How much you get back from the saver’s credit (either 50%, 20%, or 10% of your contributions) depends on your income and filing status, but there’s a cap on the maximum amount you can get.

In 2023, the max you can contribute to an IRA (traditional or Roth) increased to $6,500. If you’re 50 or older, you’re allowed to put in an extra $1,000 as a “catch-up” contribution to help you save more as you get closer to retirement.

Also, for 401(k)s and Roth 401(k)s, the contribution limit went up to $22,500. And if you’re over 50, you have the option to contribute an additional $7,500 on top of that as a catch-up contribution, giving you a bigger chance to increase your retirement savings this tax year.

Consulting a CPA: Your Guide Through the Tax Maze

The ever-changing landscape of tax laws and regulations highlights the importance of professional guidance. Searching for a “CPA near me” can connect you with experts adept at navigating these complexities, ensuring you file taxes accurately while maximizing your benefits.

Utilizing Software and Professional Services

For those inclined towards DIY tax filing, numerous software options can streamline the process, offering guidance on deductions and credits. However, for more complex situations or to ensure you’re capitalizing on all available tax incentives, consulting with a CPA can be invaluable.

By Admin