What's new that can help you save money this tax season

[UNITED STATES] As we approach the 2025 tax filing season, it's crucial for taxpayers to stay informed about the latest changes and updates that could potentially save them money. The Internal Revenue Service (IRS) has implemented several modifications for the 2024 tax year, which may impact your filing process and potentially increase your refund. Let's explore the key updates and strategies to maximize your tax savings this season.

Updated Tax Brackets and Standard Deduction

One of the most significant changes for the 2024 tax year is the adjustment of tax brackets and the standard deduction to account for inflation1. The standard deduction for single filers has increased to $14,600, while for married couples filing jointly, it has risen to $29,2001. This increase means that more of your income is shielded from taxes, potentially resulting in a lower tax bill or a larger refund.

For high-income earners, the top marginal tax rate of 37% now applies to taxable incomes exceeding $609,350 for individuals and $731,200 for married couples filing jointly1. Understanding your tax bracket is crucial for effective tax planning and can help you make informed decisions about deductions and credits.

Expanded Direct File Program

The IRS has broadened its Direct File program, allowing more taxpayers to file their returns for free directly through the agency1. This expansion now includes taxpayers in states such as Connecticut, Idaho, Kansas, Maryland, New Jersey, New Mexico, North Carolina, Oregon, Pennsylvania, and Wisconsin1. The Direct File program not only saves you money on tax preparation fees but also streamlines the filing process, potentially leading to faster refunds.

Electric Vehicle Tax Credit

If you purchased an electric vehicle in 2024, you might be eligible for a substantial tax credit. The credit can be up to $7,500 for new vehicles and $4,000 for used ones1. However, it's important to note that there may be changes to this credit in the future, so taking advantage of it now could result in significant savings.

Child Tax Credit

The Child Tax Credit remains a valuable benefit for families. Married couples with earnings up to $400,000, or single filers with earnings up to $200,000, can claim a maximum credit of $2,000 for each dependent child under the age of 171. This credit can significantly reduce your tax liability and potentially increase your refund.

IRA and 401(k) Contribution Limits

For the 2024 tax year, the maximum deduction for contributions to a traditional IRA has increased to $7,000 for most people, and $8,000 for those 50 years and older2. This increase allows you to save more for retirement while also reducing your taxable income.

Health Savings Account (HSA) Deduction

The contribution limits for Health Savings Accounts have also risen for 2024. The maximum deduction for HSA contributions is now $4,150 for self-only coverage and $8,300 for family coverage2. If you're 55 or older, you can contribute an additional $1,000. Maximizing your HSA contributions not only provides tax benefits but also helps you save for future medical expenses.

Student Loan Interest Deduction

The student loan interest deduction remains available for 2024, but the income thresholds have been adjusted. The deduction begins to phase out for single filers with a modified adjusted gross income (AGI) exceeding $80,000 and for joint filers with a modified AGI over $165,0002. If you're repaying student loans, this deduction can help reduce your taxable income.

Retirement Plan Emergency Withdrawals

A new provision for 2024 allows for penalty-free emergency withdrawals of up to $1,000 from retirement plans for certain unexpected expenses, such as auto repairs or medical bills6. While these distributions are not subject to the usual 10% early withdrawal penalty, they may still be taxable as income. This change provides more flexibility for those facing financial emergencies.

Premium Tax Credit Expansion

The temporary expansion of the Premium Tax Credit (PTC) for those who purchase health insurance through the Affordable Care Act marketplace continues through the 2024 tax year6. This expansion allows more people to qualify for the credit and potentially receive larger tax breaks. If you bought health insurance through healthcare.gov, be sure to explore your eligibility for this credit.

Strategies to Maximize Your Tax Savings

To make the most of these new tax provisions and save money this tax season, consider the following strategies:

Review your filing status: Your filing status can significantly impact your tax liability. Ensure you're using the most advantageous status for your situation.

Maximize retirement contributions: If possible, contribute the maximum amount to your IRA or 401(k) to reduce your taxable income and boost your retirement savings.

Take advantage of credits: Thoroughly review all available tax credits, such as the Child Tax Credit and the Earned Income Tax Credit, to see if you qualify.

Consider itemizing: While the increased standard deduction makes itemizing less common, it may still be beneficial if your itemized deductions exceed the standard deduction amount.

Use tax-advantaged accounts: Maximize contributions to HSAs and Flexible Spending Accounts (FSAs) to reduce your taxable income and save for healthcare expenses.

Keep accurate records: Maintain detailed records of all potential deductions and credits throughout the year to ensure you don't miss any tax-saving opportunities.

File electronically: E-filing with direct deposit is the fastest way to receive your refund, according to former IRS Commissioner Danny Werfel3.

Preparing for Future Tax Changes

As you plan for the current tax season, it's also wise to look ahead. The Tax Cuts and Jobs Act (TCJA) of 2017 is set to expire at the end of 2025, which could lead to significant changes in tax policy1. Stay informed about potential changes and consider consulting with a tax professional to develop a long-term tax strategy.

The 2025 tax filing season brings several opportunities for taxpayers to save money through new and expanded tax provisions. By staying informed about these changes and implementing smart tax strategies, you can potentially reduce your tax liability and increase your refund. Remember to file your taxes by the April 15 deadline or request an extension if needed. If you have complex tax situations or are unsure about how to maximize your tax savings, consider seeking advice from a qualified tax professional.

As you prepare to file your 2024 taxes, keep in mind that the landscape of tax law is always evolving. Staying informed and proactive in your tax planning can lead to significant financial benefits both now and in the future.