Tag Archive for: state taxes

Tax Considerations for 2024: What You Need to Know Before Filing

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Tax season isn’t the most joyful time of year, but it’s certainly one of the most important. With the filing deadline fast approaching, here’s a rundown of the latest tax updates to help you maximize deductions, avoid penalties and keep more of your hard-earned money. Plus, we’re keeping an eye on the big tax changes that might be passed down in Washington later this year.

A couple of quick notes before we dive in. If you tend to file your own taxes, you may be able to file for free, thanks to the expansion of the IRS Direct File program. Previously a pilot program, it’s now available in 25 states, giving more people access to an easy and cost-free way to submit their returns. Check the website to see if you are eligible. 

Note: There’s been a bit of confusion about the Direct File program with the head of the new Department of Government Efficiency, Elon Musk, posting on social media that it had been “deleted.” However, as of now, the website is still live. 

More taxpayers are facing IRS penalties for underpayment, often due to freelance income where taxes aren’t automatically withheld. If you’re facing a penalty for underpayment, take the opportunity this tax season to adjust your withholding on W-4 forms if you’ve underpaid. If you earn income outside of an employer, make a plan to get those estimated payments in on time.

Inflation-Adjusted Tax Changes

Some things in life are certain: death, taxes … and annual adjustments due to inflation. The IRS has once again made incremental shifts to income thresholds for tax brackets. You may find yourself in a different bracket this year, potentially changing how much you pay in income and capital gains taxes.

The standard deduction has also gone up, making it even more attractive for most filers to skip itemizing and opt for the automatic deduction:

  • $14,600 for single filers and those married filing separately
  • $21,900 for heads of household
  • $29,200 for married couples filing jointly
  • Additional deductions apply for seniors (65+), with $1,550 extra per person for joint filers and $1,950 extra for single filers

Retirement Contribution Limits

Tax rules for 2024 allow you to save even more in tax-advantaged accounts this year:

  • IRA contribution limits: $7,000, with an additional $1,000 catch-up contribution for those 50+
  • 401(k) contribution limits: $23,000, with a $7,500 catch-up contribution for those 50+

While 401(k) contributions for 2024 are closed (unless you are self-employed), you can still make 2024 contributions to an IRA until April 15, 2025. And if you’re thinking long-term, now’s a great time to kickstart your 2025 contributions.

Health Savings Accounts (HSAs)

For those enrolled in a high-deductible health plan (HDHP), HSAs remain one of the best ways to save on taxes while covering medical expenses. Contribution limits have increased to $4,150 for individuals and $8,300 for families, with an additional $1,000 catch-up for those 55+.

Gift and Estate Tax Exemptions

If you’re planning to pass on wealth to loved ones, here’s what you should know:

  • The estate and gift tax exemption is $13.61 million for 2024, rising to $13.99 million in 2025.
  • The annual gift tax exclusion is $18,000 per recipient in 2024, increasing to $19,000 in 2025.
  • While it’s too late to make a tax-free gift for 2024, major changes could be coming in 2026 when current exemptions are set to expire.

Bought an EV? Don’t Forget to Report It

Electric vehicles are becoming increasingly popular. In fact, the number of EVs on the road rose more than 65% in 2024. Government incentives are a key factor driving adoption, including up to $7,500 in tax credits buyers may take right at the dealership. If you were one of them, the IRS requires that you prove eligibility for this discount by reporting your purchase on your tax returns. To do so, you’ll need to file Form 8936, Clean Vehicle Credits, and provide your vehicle’s VIN. 

Selling Online? Expect a 1099-K

Gig sellers and casual resellers, beware of IRS reporting obligations. If you sold goods online in 2024 on platforms like eBay, StubHub, or Etsy, you may receive a 1099-K tax form if your sales exceeded $5,000. Previously, the threshold to receive a 1099-K was $20,000, but that threshold is dropping drastically. In 2025, it’s scheduled to fall to $2,500. 

What’s Coming in 2025 and Beyond?

One of the biggest potential tax shake-ups in recent years is on the horizon: The first Trump Administration’s Tax Cuts and Jobs Act (TCJA) of 2017 is set to expire after 2025. This means major changes could be coming, including:

  • A decrease in the standard deduction
  • A reduction in the estate tax exemption by half
  • Tax brackets and rates reverting to higher pre-TCJA levels
  • A reduction in the Child Tax Credit from $2,000 per child in 2025 to $1,000 per child in 2026. 
  • Eliminating the $10,000 cap on state and local tax (SALT) deductions
  • Change to the alternative minimum tax income threshold. 

The current administration appears ready to act, suggesting it will work with Congress to extend the TCJA. However, nothing will be certain until changes are made to the tax law.

With so many possible changes in play, staying ahead of tax law updates is more important than ever. We can help you keep an eye on legislative developments and adjust your planning as necessary to make the most of your tax situation. Reach out with any questions you might have. ether a disaster plan of your own, reach out and we can help. 

Emily Balmages, CFP®

Director of Financial Planning, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Less SALT for Taxpayers to Subtract

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Less SALT for Taxpayers to Subtract

What does the new federal cap on state and local tax deductions mean for you?

Have you routinely itemized your federal tax deductions? In 2018, you may decide to take the standard deduction instead. One possible reason: the new limit on state and local tax deductions set by the federal government.

The SALT deduction is now capped at $10,000. The standard deduction is now $12,000 ($24,000 for a married couple). So, your incentive to take the SALT deduction might be gone. Even if you live in a wealthy suburban area, a high-tax state, or a state that charges no income tax, you might not see any point in claiming it. The Tax Policy Center estimates that 3.5 million households will quit itemizing in 2018 simply because of this one revision to the Internal Revenue Code.(1,2)

High-earning households have usually claimed SALT deductions. Research from the TPC’s Briefing Book shows that 93% of households earning $200,000-$500,000 took the deduction in 2014. In fact, more than 40% of taxpayers in Connecticut, Maryland, and New Jersey made use of the tax break that year. In 2015, the average SALT deduction for taxpayers in California and New Jersey was around $18,000; in New York, it topped $22,000.(1,3)

The change may not affect some taxpayers. The TPC projects that households earning $150,000 or more could be hit hardest by this, but it also believes that just 40% of those households will actually see higher taxes as a result of the SALT cap. Why? Many households earning between $200,000-$500,000 will be subject to the Alternative Minimum Tax, so they will not benefit from a SALT deduction. The average taxpayer in the top 1%, though, is positioned to see a federal tax increase of about $30,000 due to the new deduction limit.(2)

Some state governments are crafting responses. In California’s state legislature, a bill proposes the creation of a new state charity, the California Excellence Fund, to which taxpayers could pay some of their state taxes. Residents could contribute the portion of their state tax bill exceeding the $10,000 federal cap to the proposed fund, and all their SALT taxes would be deductible. (To help facilitate this, these taxpayers would need to meet with their CPA or tax preparer in December rather than spring.)(1)

New York state lawmakers are also advancing a plan to create a new state charity, in the vein of the California bill. Maryland state legislators are proposing something similar, whereby taxpayers could make charitable donations to public schools once over the $10,000 SALT deduction limit.(1)

Another idea making the rounds in New York’s state legislature: have workers accept a pay cut in exchange for a SALT break. Employers would shoulder a new statewide payroll tax, and presumably reduce employee pay – but in compensation, workers would get a wage credit equivalent to their pay cut. This way, the worker’s pay would stay the same. For example, an employee could see a $10,000 salary cut, but pick up a $10,000 tax-deductible wage credit at the same time.(1)  

Will the $10,000 ceiling on the SALT deduction rise in future years? Unfortunately, no. It is not indexed for inflation.(2)

Should you still itemize in 2018, even with the new SALT deduction cap? You should make that decision (and others) with input from the tax preparer you know and trust. There are many variables that can potentially impact your federal tax return, and you will want to take a thorough look at them before you make a move.  

Contact Us

Cary FacerCary Facer
Partner Emeritus
Warren Street Wealth Advisors

Cary Facer is an Investment Advisor Representative of Warren Street Wealth Advisors, a Registered Investment Advisor. Information contained herein does not involve the rendering of personalized investment advice, but is limited to the dissemination of general information. A professional advisor should be consulted before implementing any of the strategies or options presented.

This material was prepared by Marketing Pro, Inc. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Past performance may not be indicative of future results. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals may materially alter the performance, strategy, and results of your portfolio. Historical performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results.Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark. Nothing in this commentary is a solicitation to buy, or sell, any securities, or an attempt to furnish personal investment advice. We may hold securities referenced in the blog and due to the static nature of content, those securities held may change over time and trades may be contrary to outdated posts.


Citations
1 – cnbc.com/2018/01/23/how-these-states-are-rebelling-against-the-new-gop-tax-code.html [1/23/18]
2 – forbes.com/sites/beltway/2017/12/21/what-the-tax-bills-curbs-on-the-salt-deduction-would-mean-for-itemizers/ [12/21/18]
3 – taxpolicycenter.org/briefing-book/how-does-deduction-state-and-local-taxes-work [2/19/18]