2024 Tax Updates
Key Tax Updates for 2024: Federal, California, and EV Incentives
As we enter the 2024 tax season, it's essential to stay informed about the latest changes to tax laws and available credits. Here are the most significant updates for federal and California individual income taxes, along with details about tax credits for used electric vehicles (EVs). These updates can help you plan ahead and maximize your benefits.
Federal Tax Law Changes
Standard Deduction Increase:
Single filers: $14,600
Married couples filing jointly: $29,200
Retirement Account Contributions: Contribution limits for 401(k)s and IRAs have increased, allowing you to save more for retirement while reducing taxable income.
Roth IRA: $7,000 (plus $1,000 catch-up for those 50 and older).
Traditional IRA: $7,000 (plus $1,000 catch-up for those 50 and older).
401(k): $23,000 (plus $7,500 catch-up for those 50 and older).
Solo 401(k): $66,000 (plus $7,500 catch-up for those 50 and older).
SEP IRA: Up to 25% of compensation or $66,000, whichever is less.
Clean Energy Tax Credits: Expanded credits are available for energy-efficient home improvements (e.g., windows, solar panels) and clean vehicles.
Form 1099-K Reporting Thresholds:
Threshold increased to $5,000 for 2024, transitioning to $600 by 2026.
Beneficial Ownership Reporting Requirements: Certain business entities must now file a Beneficial Ownership Information Report to comply with federal regulations.
Expiring Capital Gains Tax Rates: The current long-term capital gains tax rates of 0%, 15%, and 20% are set to expire at the end of 2025. If Congress does not act to extend these rates, higher rates may apply starting in 2026. Selling appreciated assets like stocks, real estate, or other investments before this expiration could help lock in the lower tax rates and reduce your overall tax burden.
IRA Conversion to Roth IRAs: Converting a traditional IRA to a Roth IRA can provide significant tax benefits. While the conversion is a taxable event, the funds grow tax-free in a Roth IRA, and qualified withdrawals in retirement are also tax-free. This can be particularly beneficial if you anticipate being in a higher tax bracket in the future. Converting during a year with lower income or before tax rates potentially increase in 2026 can help minimize the tax impact.
Qualified Business Income (QBI) Deduction Expiration: The QBI deduction, which allows eligible pass-through business owners to deduct up to 20% of their qualified business income, is set to expire at the end of 2025. Business clients should consider how the expiration might affect their tax liability and explore strategies to optimize their taxable income before this provision ends. Planning ahead may include adjusting salaries, maximizing retirement contributions, or reinvesting profits strategically to mitigate the impact.
California Tax Law Changes
Passthrough Entity Tax (PTET): Eligible S corporations, partnerships, and LLCs can elect to pay state taxes at the entity level to reduce federal taxable income.
E-File Mandate for Tax Preparers: Tax preparers handling more than 100 returns or using software must e-file to comply with California law.
Disaster Tax Relief: Relief measures are available for taxpayers in state-declared disaster areas, including extended filing deadlines.
IRS Updates on Digital Assets (Cryptocurrency)
Broker Reporting Requirements:
Brokers must report digital asset transactions starting in 2025.
Form 1099-DA will be introduced to facilitate reporting.
Taxpayer Responsibilities:
Ensure accurate reporting of digital asset transactions.
File IRS Form 8936 for claiming relevant credits.
Penalties and Relief: A transitional period offers penalty relief for brokers making good-faith compliance efforts.
Tax Credits for Used Electric Vehicles (EVs)
Credit Amount:
Buyers can claim 30% of the sale price, up to $4,000.
Eligibility Criteria:
Vehicle price: $25,000 or less.
Age: At least two years old.
Income limits: $75,000 (single), $112,500 (head of household), $150,000 (married filing jointly).
Point-of-Sale Credit: Starting January 1, 2024, buyers can apply the credit at the point of sale, reducing the purchase price immediately.
Additional Requirements:
Vehicle must be purchased from a licensed dealer.
Dealers must provide a time-of-sale report for credit eligibility.
How to Prepare for the 2024 Tax Season
Review Withholding and Payments: Check your withholding and estimated tax payments to avoid underpayment penalties.
Keep Detailed Records: Track all digital asset transactions and EV purchases.
Evaluate Selling Assets: Consider selling appreciated stocks, real estate, or other investments before the expiration of current capital gains tax rates to lock in lower rates.
Consider Roth IRA Conversions: Evaluate the benefits of converting traditional IRAs to Roth IRAs during a year with lower income to capitalize on tax-free growth and withdrawals in retirement.
Plan for QBI Deduction Expiration: Work with a tax advisor to assess how the end of the QBI deduction might impact your business taxes and explore strategies to mitigate the effect.
Tax laws are constantly evolving. Staying up-to-date can help you avoid surprises and make the most of available benefits. For personalized advice and assistance, contact us today to ensure you’re ready for the 2024 tax season.