How to Get Prepared for the 2024 Tax Season

The 2024 tax season opens on Monday, January 29, when the IRS officially begins accepting and processing 2023 returns. While the April 15 filing deadline is still months away, getting an early start with an organized approach will allow for a smoother filing process, which can save you time, hassle, and possibly a significant amount of money. Careful planning will help to ensure that you’re using tax breaks to your advantage so that you can maximize your potential refund, or reduce your tax bill this spring. Start with these pointers so that you’ll be ready well ahead of Tax Day:

Make sure you get all pertinent forms before you file.

Especially if you are owed a refund this year, it’s certainly understandable if you’re chomping at the bit to get your return filed. As you know, the earlier you file your return, the sooner you’ll get your money. And although the IRS doesn’t officially begin accepting and processing returns until January 29, you actually don’t have to wait until this time to start filing if you’re using a tax professional or tax software. As the IRS explains, most tax software programs accept electronic submissions and then hold them until the government is ready to begin processing. At the same time, if you don’t have all the relevant tax-related related documents (e.g., 1099s, W-2s, 1098 mortgage interest statement), you might face setbacks like having to file an amended return. To be on the safe side, make sure you have all forms before you submit your return.

Determine whether you’ll hire a professional tax preparer or file yourself.

Whatever your personal tax situation, it’s best not to file a paper return and mail it. If your taxes are relatively straightforward and you’re comfortable doing them yourself, use guided tax software to file electronically with direct deposit. The IRS recommends e-filing as a fast and easy way to complete your return, and to get your refund quicker. If you need more convincing, you might want to view their video “Six Reasons Why You Should File Electronically.”

On the other hand, there are various situations in which you might be better served by working with a tax professional like a certified public accountant (CPA) or enrolled agent (EA). For instance, those who are self-employed or business owners generally have more complicated returns that may warrant this. Major life transitions and financial changes such as buying a home, getting married or divorced, welcoming a new child into the family, or becoming an investor also have important tax ramifications which can make it advisable to work with a professional. But before hiring anyone new to prepare your taxes, check their background to ensure that they are licensed, and that they operate with integrity and trust. Find “8 Tips for finding a tax preparer or tax professional near you” at NerdWallet.

Compile all relevant documents related to your income and organize receipts.

If you work, look out for a W-2 from any employer you had in 2023 to arrive by January 31, or if you’re self-employed, make sure you obtain all 1099-MISC Forms. But be aware that the IRS requires that you declare all taxable income on your return. This may include wages, salaries, bonuses, commissions and tips. But it can also include self-employment income, rental income, dividends, interest, IRA distributions, capital gains, alimony (for agreements prior to 2019), pensions, royalties, and more. Whatever categories of income that may pertain to you, ensure that you have all related documentation. Depending on your individual situation, you may need to compile, tally and organize your receipts from expenses as well, which can take significant time.

Collect income adjustments that will lower your taxable income.

Certain expenses and payments can directly reduce your total taxable income and you don’t need to itemize them — they are referred to as adjustments to income. Even if you take the standard deduction, you can potentially use these adjustments to reduce your tax bill, or receive a larger refund.

Sometimes referred to as “above-the-line” deductions, adjustments to income are reported on Schedule 1. They are subtracted from your total income on Form 1040 to calculate your adjusted gross income (AGI). Simply put, your adjusted gross income is your gross income minus any adjustments.

The AGI is used as a starting point for calculating your income tax liability, and it directly affects your eligibility for certain below-the-line deductions and credits, which helps to reduce your overall tax burden. As just one example, unreimbursed medical expenses can only be claimed as an itemized deduction if they equate to more than 7.5% of your AGI. For many above-the-line deductions/adjustments, you will receive a Form 1098. Common adjustments can include the following: 

• Student loan interest payments (up to $2,500 on qualified loans)
• Contributions to certain retirement accounts (such as a traditional IRA)
• Alimony payments made to a former spouse (for agreements prior to 2019)
• Health savings account (HSA) contributions
• Educator expenses (up to $300 of out-of-pocket classroom expenses for 2023)
• Half of self-employment taxes paid
• Self-employed health insurance premiums
• Early withdrawal penalties paid from a time savings account or certificate of deposit
• Moving expenses for certain members of the Armed Forces

Familiarize yourself with new tax changes including credits and deductions, and be aware that the standard deduction has been increased for returns filed in April 2024.

As you know, itemized tax deductions and credits can reduce the amount of taxes you owe or increase the value of a refund. But for most people without a considerable amount of deductible expenses, it often makes better sense to claim the standard deduction these days, which is the fixed dollar amount that the IRS allows most people to subtract from their adjusted gross income to reduce their tax bill with no questions asked.

Because of annual inflation adjustments, the IRS has raised the 2023 standard deduction for tax returns filed in 2024. You can find the standard deduction according to your tax filing status here. Also due to inflation, federal income tax brackets have been adjusted for the tax year 2023 that are filed in 2024, expanding the amount of taxable income you can have in each tier by an approximate 7%. Under these changes, some people may find that their taxable income is lower this year, or that they aren’t pushed into a higher bracket even if they received a raise to keep pace with inflation.

Taking the standard deduction can save you time and the hassle of compiling various deductions, and keeping records and receipts in case of an audit. However, if the sum of the itemized deductions you can claim is more than the standard deduction, it’s usually best to itemize to maximize your potential return or minimize what you owe. Thankfully, you can find a helpful breakdown of “20 Popular Tax Deductions and Tax Breaks for 2023-2024” at NerdWallet. 

Gather your deductions and credits if you potentially plan to itemize.

Whether you plan to do your taxes yourself using software or you will file with the help of a tax preparer, you’ll need to take the time to gather and organize deductions if you think you might decide to itemize. In some cases, additional forms will need to be completed to claim certain credits or deductions.

When evaluating the value of your individual tax breaks, keep in mind that although both deductions and credits can reduce your tax bill or increase your tax refund, they function in different ways. A tax credit lowers your tax bill directly on a dollar-for-dollar basis. One the other hand, a deduction reduces your taxable income by the percentage of your highest federal income tax bracket. To illustrate, if you are taxed at the 24% tax bracket for 2023, a deduction of $2,500 could save you $600. Also note that certain tax credits are refundable, while others are not. A refundable tax credit can be provided to you as a refund even if you don’t owe taxes for the year.

Use the IRS online portal to create an online account.

Finally, if you don’t already have an IRS online account, do yourself a favor and set one up! The interface allows you to view outstanding balances and payment history, find the previous year’s AGI, request transcripts, make payments, and update bank information so that you can get your return faster. Find more details at the IRS site here.

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