With the April 15 federal tax filing deadline well behind us, many who have filed their 2023 tax returns have breathed a sigh of relief. But since the tax code changes frequently – and never gets any less complicated – it’s worthwhile to be aware of a few changes coming down the road in tax year 2024 and future years.
IRS Free Filing
For tax year 2023, the IRS rolled out a limited pilot of its new, free Direct File program. For 2023, it was accessible only in 12 participating states and limited to taxpayers with relatively simple tax returns:
• Income limited to Form W-2, Social Security or unemployment
• Interest income of $1,500 or less
• Standard deduction rather than itemized deductions
The IRS will expand the rollout of the program in subsequent tax years.
Electric Vehicle Credit
Taxpayers who purchased an electric car may get up to $7,000 in a credit in tax year 2023 (and continuing through 2032), but the eligibility rules have become tighter. Limitations include income limits and requirements that the vehicle meet other criteria such as having final assembly in North America.
Starting in tax year 2024, electric vehicle purchasers can transfer the credit to the car dealerships for an upfront discount, rather than waiting until they file their 2024 tax returns. This will appear as a reduction in the purchase price of the vehicle.
Energy Efficiency Home Improvement
Starting in tax year 2023, taxpayers can claim up to $1,200 per year in certain home improvements such as exterior doors, windows and insulation. In addition, a credit of up to $2,000 is available for new water heaters, heat pumps and boilers.
The Residential Clean Energy Credit is available for items like solar panels, solar water heaters or wind turbines, up to 30% of qualified costs.
Child Credit
The US Congress is debating an increase in the child tax credit, currently $2,000 for each qualifying dependent. If an increase is enacted in the middle of the tax year, the additional credit would be available as a retroactive payment. Taxpayers who have already filed would not have to file an amended tax return to realize the increased credit.
Non-W2 Income
Freelancers, independent contractors and small businesses have long been required to report any income to the IRS over $400. Online payment processors such as Venmo, Paypal, eBay or Airbnb are required to report the income of people selling goods and services, but at the current time only when their activity exceeds 200 transactions and $20,000 in payment annually.
That will likely change for the 2024 tax year: The IRS plans to lower the threshold to $5,000 annually, with no transaction minimum. The threshold could be lowered in subsequent years and eventually drop to a minimum of $600.
State and Local Tax (SALT) Deduction
The maximum deduction for state and local taxes paid is currently $10,000, through tax year 2025. However, some states provide a work-around, allowing taxpayers to pay the taxes from a pass-through entity such as an S-corporation or partnership. Then the entity owners can deduct the entity’s taxes on their personal tax returns. This work-around is complicated and not available in all states, requiring the skill of a well-experienced tax professional.
Cryptocurrency
Taxpayers are required to report any profits (capital gains) or losses from the sale of investments such as stocks or bonds. Brokerage firms must prepare tax forms (1099-B and 1099-DIV) to report these.
Up to now, brokerage firms have not been required to report transactions involving cryptocurrency or other digital assets. The IRS has proposed a new requirement to report these transactions with a new tax form – Form 1099-DA.
Regardless of the how brokerage firms report, taxpayers are still required to report any capital gain or loss when they sell digital currency.
If you have questions about this featured topic or other accounting and tax related topics, please do not hesitate to contact us at 727-327-1999 OR [email protected].
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.
