For many people, filing a tax return each year is a dreaded chore. It doesn’t have to be. A little preparation and knowledge can ensure you file on time and take advantage of any credits and deductions that will lower your tax bill.
The average 2023 refund was $3,617, according to the IRS, and you may look forward to a check every year. But financial professionals counsel that it’s better to adjust your withholding allowances so that you owe nothing or just a small amount when you file. That way you keep more of your money throughout the year to use or boost your savings.
If you do receive a refund, it may be bigger than in past years. The IRS made inflation adjustments to many tax rules for 2023, increasing the standard deduction, and raising tax brackets by 7.1 percent. The goal was to prevent Americans from getting pushed into higher tax brackets if they received cost-of-living raises due to inflation.
You may be in a lower tax bracket this year, and if you choose the standard deduction, which 86 percent of taxpayers do, you may be eligible for more income deductions. All of this can lower your final tax bill.
Here are important tips and changes for the 2024 tax season:
Get Organized. The biggest hurdle to filing on time is not having the records you need to complete your tax return. Get organized now, by putting all tax-related mail in a folder or box as it arrives. Here’s a handy timetable to know when to expect your statements.
Will you get a refund? Use this handy tax refund calculator from NerdWallet to find out. Then you can determine what filing status will be the best for your situation.
How will you file? If you are married, it’s a good idea to do your taxes two ways to determine which filing status saves you the most: married filing jointly, or married filing separately.
Deductions vs. Credits. It’s helpful to understand the differences between tax credits and deductions, to maximize your tax savings. Credits are dollar-for-dollar reductions to the total tax you owe, while deductions lower your taxable income.
Standard Deductions. For married couples filing jointly, the standard 2023 deduction is $27,700 for 2023, increased from $25,900 in the 2022 tax year. That’s an increase of $1,800, while for single taxpayers and married individuals filing separately, the standard deduction is $13,850 in 2023, compared with $12,950 last year. That’s an increase of about 6.9 percent. The standard deduction for those filing Head of Household increased to $20,800 from $19,400 in 2022, an increase of 7.2 percent.
Refundable Tax Credits. The IRS offers various refundable tax credits. If you are eligible for one, and it is larger than the tax you owe, you will receive the difference as a refund. Popular credits for low-income families that meet the requirements are the Earned Income Tax Credit, with credits of up to $7,340, and the Child Tax Credit for those with children under age 17. The maximum credit per child is $2,000 for taxes filed in 2024.
Child and Dependent Care Credit. This credit helps taxpayers pay for daycare for a child under 13 or other dependents while you work. The credit is 35 percent of $3,000 of expenses for one dependent or $6,000 for two or more dependents.
Saver’s Credit. The IRS wants to reward you for saving for retirement in an IRA, 401(k), 403(b) or certain other retirement plans. The saver’s credit is taken as a percentage – 10 percent to 50 percent of up to $2,000 or $4,000 if foiling jointly. The percentage you can take depends on your filing status and income.
Student Loan Interest Deduction. Are you still paying off student loans? You may be able to write off up to $2,500 of taxable income if you have paid interest on your loans during the tax year.
Deduction for State and Local Taxes. Owning a home is expensive, but you could save at tax time by deducting up to $10,000 ($5,000 if married filing separately) for a combination of property taxes and local income taxes or sales taxes paid on the purchase of a primary home.
When you do your state tax return, be sure to review the list of over 40 Ohio credits to see if you qualify for even more savings. Filing taxes can be stressful. But a little preparation and research could make the process easier, and you just might end up with more money in your credit union account.