Key Considerations for Americans as They Prepare for 2024 Tax Season

As tax season comes to a close, what should Americans ask themselves about their 2024 taxes?

Americans who were hit with a surprise tax bill earlier this month should check their withholdings or estimated payments. Paying the right amount of tax throughout the year – either on your own or through your employer – will certainly reduce, if not eliminate, the pain that usually visits on April 15th.

Many major life events don’t just happen - they are planned. If you’re planning to get married, divorced, or start a business in 2025, you should be updating your tax strategy, otherwise, you’ll be feeling the pinch again next April.

The increase in standard deduction in 2017 made itemizing less useful for many Americans. But if you aren’t asking yourself if you’ve looked at every available itemized deduction – from retirement account contributions or charitable giving - you could be leaving significant sums of money to the government, rather than your wallet.

What are the key areas they should review?

For those who are W2 earners, make sure you check your withholdings, especially your state withholdings.  Many people overlook state income tax withholdings, which can end in disaster. For high earners and the self-employed, be sure your quarterly estimates are accurate and set reminders to pay your estimated taxes every quarter.  For those in the gig economy, freelance income and expense reporting should be clearly documented; if you don’t have a system to track these in your side-hustle, do that now.

Plan to itemize your deductions.  If you can find enough deductions to overcome the amount allotted in the standard deduction, you unlock a host of tax savings. Make sure you are checking your eligibility for credits and deductions like child care, education credits, medical expenses, charitable giving, and others.

You should assume the IRS already knows about all of your sources of income, so don’t overlook reporting any one of them. For example, digital currency traders should be aware of capital gains and ordinary income taxes; side hustlers should understand that their income is subject to ordinary and self-employed tax unless they reconfigure their business structure; and you should review your taxable brokerage account to minimize the number of income and dividend producing assets that are in those accounts.

Are there any key adjustments they should consider making?

 

If you are a W2 wage-earner, it may make sense to adjust your W-4 strategically, which can be a big help. Many of us have fewer big expenses at the beginning of the year and tend to spend more in the summer and then around the holidays.  Knowing that, it may make sense to increase your withholdings at the beginning of the year and then reduce them as the year goes on so that you have more money when you need it, but don’t end up under-withholding on your taxes. 

Check to see how much you contributed to your IRA, 401(k), and HSA – did you still owe taxes but didn’t max out on these contributions?  Well then, you’ve just given the government more than they deserved!  By maxing out your contributions to your 401(k), IRA, or HSA, you can lower your tax bill while building future financial security.

Business owners should reevaluate the structure of their business.  Partnerships and LLC’s are taxed as ‘pass-through’ entities, meaning that distributions are subject to two kinds of tax: ordinary income and self-employment tax.  Making an S-corp election and establishing payroll may go a long way to reduce the business owner’s burden, but that process should start now.

How can they learn from last year to make this year better?

Did you have to pay a massive amount of taxes just now?  Or did you get an insanely large refund?  Either way, these are flashing red signs to update your tax plan now. Either you aren’t projecting out your income correctly, or you’re lending the government money at 0% interest – either way, something needs to be fixed in your tax strategy.

There is no substitute for good documentation.  Misses in tax savings can usually be tracked to a lack of good documentation. Setting up or optimizing your bookkeeping and expense-tracking today can dramatically ease next year’s tax season headaches.

Work with a professional to at the very least, learn which credits and deductions you missed last year can unlock major savings this year – the tax code is enormous, you do not have time (or, let’s be honest, the interest) to find every deduction or credit that you might qualify for.  If you DIY’d your taxes and are unhappy, it may be time for a change.

Is there anything they need to watch out for in 2025?

Although given the current political climate, it is unlikely to happen, but the tax cuts from the TCJA 2017 are set to sunset at the end of this year, so taxpayers should plan now for possible higher rates.

There is a target on the back of underreporting gig workers. There are new reporting regulations requiring platforms like Venmo and Cash app to report business transactions of New $600 or more.  If you aren’t prepared to track these smaller dollar transactions, it could spell disaster for you next April. 

The global economic uncertainty, along with higher interest rates, could change the math on mortgage deductions and real estate strategies heading into 2025. If you’re going to invest in real estate, make sure you’re doing it in the right way, given the economic environment. Real estate can provide an amazing source of tax relief, but you want to make sure you do the deal right at the outset to avoid headaches later.