After another year of tax code changes, many taxpayers may get a lesser refund or larger bill in 2024, warn experts. Many Americans face lower tax incentives, so year-end preparation is crucial.
According to financial experts, these are the major tax adjustments for 2024.
Here are some of the changes:
Tax Credit
Cecil Staton of Arch Financial Planning says the child tax credit and child and dependent care tax credit have both been reduced for 2024.
Both tax credits were temporarily boosted under the American Rescue Plan of 2021, but not for this year. Staton: “Many people will have less money.”
In 2021, the child tax credit increased to $3,600 per kid under six. You could also receive a$3,000 for each child 6 through 17, with half accessible upfront. The tax exemption returns to $2,000 per kid under 17 in 2024.
Also, the child and dependent care tax credit have been reduced for 2024. It helps cover the expense of caring for children under 13 or adult dependents. The credit increases to $16,000 for two or more dependents or $8,000 for one individual in 2021. In 2024, these restrictions will be $3,000 for one dependant and $6,000 for numerous.
For third-party payments, Form 1099-K will need to be used.
The Form 1099-K might be mailed to you in early 2024 if you used apps like Venmo or PayPal in 2024. The IRS says the form covers part-time labor, side jobs, and selling items.
Before 2024, taxpayers with 200 transactions above $20,000 had to file Form 1099-K, and now, a single $600 transaction can trigger the form.
According to Menlo Asset Management’s Austin Chau, transactions like reimbursing your roommate for meals or bills aren’t taxed. You’ll only pay taxes on profits, he added. The $50 profit from selling $150 concert tickets for $200 in 2024 is taxed, Chau added.
If you transfer money to someone else for personal reasons, you shouldn’t receive a Form 1099-K. However, experts say it’s possible, and you may need to contact the issuer or alter your tax return.
Charitable deductions are tougher to claim.
Your tax refund may be reduced in 2024 because taking the charitable deduction may be more difficult. You won’t be able to get a charity tax credit if you don’t itemize in 2024, says Marguerita Cheng, CEO of Blue Ocean Global Wealth.
Congress handed charities a boost in 2021 by allowing single donors to deduct up to $300 for cash gifts or $600 for married couples filing jointly, said CNBC’s Financial Advisor Council member Cheng.
The 2024 tax break wasn’t extended. Now, you’ll only profit if your itemized deductions, including charitable giving, surpass the standard deduction, which is rare. According to the IRS, 90% of 2019 filers utilized the standard deduction.