The 2024 tax season—in which you file your 2023 return—is upon us. Now is a great time to familiarize yourself with upcoming filing deadlines, 2023 tax rates and brackets, changes that could affect your return and even things you can do to better prepare for next year’s tax filing.
Important Tax Dates
Monday, April 15, 2024, is the deadline to file your 2023 federal tax return. You can begin preparing for this deadline as early as January. Following a month-to-month guide will help you stay on track throughout tax season. (Note: Your state’s tax filing deadline may vary from the federal one.)
If you fall behind schedule and aren’t ready to file your return by April 15, you can file an extension with the IRS prior to that deadline via Form 4868. It buys you another six months until October 15, 2024, to complete your return. However, it doesn’t excuse you from paying penalties and late fees for any tax payments you owe the IRS. For that reason, the IRS recommends estimating your tax liability and paying that amount with your extension to limit the interest and penalties you’d otherwise accrue.
Key Information to Gather
As you get a jump start on tax season, one of the most important things to do is make a list of everything you’ll need to file your return. Here are some of the most common things that should be on that list:
- A social security number for you, your spouse and any dependents you plan to claim
- Last year’s federal and state returns
- Documentation of any federal, state or local estimated taxes you paid in 2023
- A W-2 from every employer you worked for last year
- 1099s for 2023 earnings generated by interest, dividends and freelance or contract work
- Personal and business receipts
Businesses that owe you W-2s or 1099s must mail them by January 31. If you have a choice to receive these tax documents electronically, take advantage of it. This will eliminate postal delays and the potential for postal theft, a frequent tactic of criminals who steal identities to commit financial fraud.
2023 Marginal Tax Rates and Tax Brackets
The United States uses a progressive marginal tax rate. This means every dollar of income is taxed at a certain rate that increases as your income rises. The 2023 marginal income tax rates remain at 10%, 12%, 22%, 24%, 32%, 35% and 37%. However, the 2023 tax brackets for each of those seven rates have been adjusted upward to account for inflation.
Here’s an example of how these rates and brackets break down for a married couple filing jointly for tax year 2023 with $80,000 in adjusted gross income (AGI), which is their taxable income after all deductions and exemptions have been subtracted:
|Marginal Tax Rate
|Married Filing Jointly Tax Bracket
|Taxable Income Amount x Marginal Tax Rate = Tax Due
|$0 – $21,999.99
|$21,999.99 of their income is taxed at 10% = $2,200 (rounded up)
|$22,000 – $89,449.99
|$58,001 (remainder of their income) is taxed at 12% = $6,960
|Total Tax Due
|$80,000 of taxable income = $9,159
The tax rates on capital gains from assets held more than one year are still 0%, 15% and 20%, but the corresponding tax brackets for these rates have also been adjusted upward for inflation. This means you pay $0 tax on long-term capital gains at the following income levels:
- Single or Married Filing Separately: Up to $44,625
- Married Filing Jointly: Up to $89,250
- Head of Household Filer: Up to $59,750
Tax Code Changes to Understand
Before beginning and finalizing your 2023 return, review changes from the IRS, which could reduce your tax bill or increase your refund. (Note: Tax credits, which decrease your tax liability dollar for dollar, are more desirable than tax deductions, which are expenses that you can use to help lower your taxable income, although both benefit taxpayers). Here are some of the most important tax code details to note as you prepare to file:
- Increase in the standard deduction. For most filers, it makes more sense to take the standard deduction, which increases to $13,850 for single filers, $20,800 for single heads of household and $27,700 for married couples filing jointly for tax year 2023.
- Increase in Health Savings Account (HSA) contributions. For 2023, the maximum you can contribute to an HSA is $3,850 for an individual and $7,750 for a family. Individuals 55 and over can contribute an additional $1,000.
- Increase in the Earned Income Tax Credit (EITC). The maximum EITC credit for eligible taxpayers with no children increases to $600 from 2022’s EITC $560.
- Increase in the Child and Dependent Care Credit. For tax year 2023, the maximum allowable Child and Dependent Care Credit increases to $3,000 for one qualifying dependent. For two or more qualifying dependents, the maximum credit is $6,000.
- Increase in estate tax exemption. This exemption, indexed to inflation, increases to $12.92 million per person in 2023.
- Increase in the annual gift exclusion. In 2023, you can give money to your loved ones without incurring tax liability or using up any of your lifetime estate and gift exemption up to $17,000 per recipient (up $1,000 from 2022).
- Impact of the Inflation Reduction Act: Many of the tax benefits of this 2022 act go into effect for tax year 2023 including a solar energy credit and energy efficient home improvement credit, both equal to up to 30% of the cost, as well as an electric vehicle credit of up to $7,500 for a new purchase and up to $4,000 or 30% of the sales price for a used purchase.
- Return of student loan interest deduction: Now that student loan payments have resumed, up to $2,500 in student loan interest can be deducted if you itemize.
It’s also worth noting some things that are staying the same for your 2023 tax return as they were for your 2022 one:
- The Child Tax Credit, which was temporarily bumped up in 2021 as part of the American Rescue Plan Act (ARPA), returned to $2,000 in 2022 for children aged 16 and younger and remains at that level for 2023. The credit phases out of $400,000 for joint filers and $200,000 for single filers. For other qualified dependents, you can claim a $500 credit.
- The American Opportunity credit can still be used for the expenses that you incur in the first four years of higher education. Likewise, the Lifetime Learning credit still applies to tuition costs for undergraduates, graduates and those improving job skills through a training program.
- State and local tax deductions are still capped at $10,000.
- The limit on mortgage interest deductions remains at $750,000 in mortgage debt, with the exception of those who had $1,000,000 in home mortgage debt before Dec. 16, 2017 and are still able to deduct interest on those loans.
- Only medical expenses that exceed 7.5% of AGI can be deducted for 2023.
- Miscellaneous deductions continue to be disallowed.
- The home office deduction is still only applicable to self-employed taxpayers, not employees who work from home.
- Deductions for qualifying gifts to public charities in 2023 remain limited to 30% of AGI for contributions of appreciated capital gains property and 60% of AGI for cash contributions.
Another important thing to note: The IRS had originally planned a change for the 2023 tax year that would have required payment apps and online marketplaces to issue 1099-Ks for taxpayers who received over $600 in payments from them.
Life Changes that Could Affect Your Return
Life changes can always affect your tax filing status and your deductions. Let’s look at some examples of changes that will likely affect your 2023 taxes. (These are not changes to the tax code. They’re simply changes in your life that could have a big impact on your tax return).
If you got married, divorced or were widowed in 2023, your tax filing status will change. Married couples often file jointly because the standard deduction is twice as high as for married people filing separately. However, if your divorce was finalized by the last day of 2023, you will likely need to file using the “Single” status. If you have one or more dependent children in your home, you may be able to file as “Head of Household.”
The number of dependents in your home:
If you had or adopted a child in 2023, remember that you’ll qualify for a child tax credit (or an additional one if you already had children). You can also claim a child tax credit for foster children, stepchildren and other relatives who are minors. If you’re sharing custody of a child, they must be living with you more than half the year and you must pay for more than half of their support. People who care for other dependent family members, such as elderly relatives, can also receive tax credits.
Buying a home.
Being a homeowner still comes with significant tax advantages. If you itemize your deductions, you can deduct mortgage interest and your property taxes (currently capped at $10,000 as noted above). If you paid points to your lender when purchasing a home in 2023, you can also deduct those.
Other changes, for better or worse, can impact what you need to report on your taxes. Your tax preparer can provide guidance based on your situation. Tax preparation software also asks questions about changes that can impact your taxes.
Ways to Adjust for Next Year’s Tax Season
Making wise financial choices related to your taxes is an ongoing process that doesn’t end when you submit your annual return. Throughout the year, think about how you can use tax laws to your advantage. Here are some strategies to add to your 2024 to-do list that can help improve your financial position and tax situation for spring 2025:
1. Use a refund wisely:
The IRS lets you check the status of your refund with its refund tracking tool. Make sure to use any money you get back to put yourself in a better financial position, such as building up an emergency fund or paying down credit card debt. For more ideas on how to use your refund, click here.
2. Review your return:
If you withheld too much or too little in federal income taxes from your paycheck, submit a new W-4 with your employer to claim the correct number of exemptions. The IRS withholding calculator is a great resource to help ensure you get this number right based on your unique situation.
3. Take full advantage of Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs):
These can reduce your overall tax liability because the money is taken out of your paycheck before taxes.
4. Maximize tax-free contributions to retirement plans:
Such contributions can also help reduce your taxable income. Starting with tax year 2023, the maximum contribution to a 401(k) is $22,500 and to an IRA is $6,500 for people under 50 and up to $7,500 for those 50 and over.
5. Review your itemized deduction strategy:
With higher standard deductions due to recent tax law changes, you might benefit from doing things like bundling two-years’ worth of charitable contributions into one year in order to be able to itemize and gain a bigger tax advantage.
Finally, using a financial planning calendar can help you stay on top of important tax details and documents throughout this upcoming year.
Editor’s Note: Before altering your tax strategy, consult with your tax specialist. They have a firm understanding of your wants and needs, as well as the knowledge of tax law required to maximize your wealth potential.