It’s tax season, the anxiety-inducing time of year when millions of Americans start thinking about all the things they’d rather do than prepare their tax returns.
But the task could be less onerous this year. There weren’t a lot of adjustments to the tax code in 2024, so if your personal circumstances didn’t change, your tax return probably won’t change much, either.
More important, chances are very good that Congress will extend the individual tax provisions of the 2017 Tax Cuts and Jobs Act, which are set to expire at the end of 2025 — so you likely won’t have to take steps to avoid a tax increase in 2026.
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Still, you should take your time when preparing your return or gathering the information you’ll need to provide to your tax preparer. Otherwise, you may overlook tax-saving provisions or make errors that could lead to an unnerving letter from the IRS.
Key Tax Return Issues
Here are issues to watch out for when you tackle your 2024 tax return.
EV tax credit
Since January 1, 2024, buyers who purchase an eligible electric vehicle have been able to claim a tax credit of up to $7,500 for a new EV or $4,000 for a used one at the point of sale, either as a rebate or as a reduction in the cost of the vehicle, thanks to a provision in the 2022 Inflation Reduction Act. If you took advantage of the credit to lower the cost of an EV, you’ll need to report it when you file your tax return.
Learn More: How the EV Tax Credit Works
When you purchased the EV, the dealer should have given you a time-of-sale report and a document indicating that the IRS had accepted it. The report confirms that your vehicle was eligible for the credit, lists the amount of credit available for the specific vehicle you bought, and shows that the credit was transferred to the dealer by the IRS. If you didn’t receive a time-of-sale report (or if you lost it), contact the seller. Without it, you can’t claim the credit, the IRS says.
File Form 8936, “Clean Vehicle Credits,” with your tax return. You’ll also use this form if you didn’t receive the credit at the time of purchase. You’ll need your car’s vehicle identification number (VIN) to fill out the form.
Taxes on Bitcoin profits
Bitcoin investors have enjoyed a spectacular ride in recent months, with bitcoin trading at more than $100,000 in December. If you invested in bitcoin and took some of your profits off the table last year, it’s important to understand that those gains are taxable. Although many people refer to bitcoin as currency, the IRS views it as property, and gains are taxed the same way that gains from the sale of stocks, bonds, and other capital assets are taxed. You’ll owe taxes on your gains even if you used your bitcoin to buy something.
If you owned bitcoin or other cryptocurrency in a taxable account, your gains from selling any that you owned for a year or less will be taxed at your ordinary income rate (rates ranged from 10% to 37% in 2024). If you sold crypto you owned for more than a year, you’ll owe long-term capital gains taxes on your profits, with rates ranging from 0% to 20%, depending on your income.
When you fill out Form 1040, you will be asked whether you received, sold, exchanged or otherwise disposed of a digital asset in 2024. The IRS added that question to the form for tax year 2020 in response to concerns that many taxpayers weren’t reporting cryptocurrency profits on their returns.
The IRS is expected to increase scrutiny of digital-currency holdings in tax year 2025, when brokers will be required to report proceeds from the sale of digital assets on the newly introduced Form 1099-DA.
Taxpayers who sell digital currencies in taxable accounts this year will receive the forms in early 2026. The reporting requirement will allow the IRS to match reports from cryptocurrency brokers with information on taxpayers’ tax returns, just as the agency already does with Form 1099s for mutual funds, stocks and other investments. If you’re buying and selling cryptocurrency, keep good records—particularly of the amount you paid for your crypto, known as the cost basis.
Staying on the right side of the IRS has this advantage: If a digital currency you own takes a dive and you sell at a loss, you can harvest the loss to offset other capital gains.
Transactions that generate a Form 1099-K
The American Rescue Plan Act of 2021 required payment processors, such as Venmo and PayPal, to report to the IRS total payments of $600 or more to a user in a year. The requirement was delayed after tax professionals and advocates for small businesses argued that it would cause tax headaches for millions of self-employed and gig workers.
For 2023, payment processors were required to file a 1099-K form only for a user who received more than $20,000 in payments and had more than 200 transactions, but that threshold dropped to $5,000 for 2024. Many individuals who sell items on Etsy or receive payments for side gigs are going to get 1099-Ks for the first time this year, says Andy Phillips, vice president for the Tax Institute at H&R Block.
Vendors aren’t supposed to issue Form 1099-Ks for personal transactions, such as peer-to-peer transfers with friends and family. But as a result of the lower reporting threshold, some individuals may receive erroneous 1099-Ks, Phillips says.
If you receive a 1099-K for a personal transaction, report it on the line at the top of Schedule 1 of Form 1040 (“Additional Income and Adjustments to Income”) that is designated to correct errors. You can also use this line to report proceeds from the sale of a personal item at a loss — for example, the couch in your basement that you bought for $1,000 a decade ago and sold for $500, Phillips says. You can’t deduct such losses, but reporting them on Schedule 1 will exclude the proceeds from your adjusted gross income while also ensuring the income is reported to the IRS for compliance purposes (tax software will walk you through this process).
The goal of the reporting requirement is to make it easier for the IRS to keep tabs on self-employment income. But even if you don’t receive a 1099-K form, you’re required to report all of your income to the IRS.
And if you have a side gig or are self-employed, make sure you keep solid records, because there’s a good chance you’ll receive a 1099-K in the future. The threshold is scheduled to drop to $2,500 for 2025 and to $600 for 2026. Some payment apps offer a “friends and family” designation you can use to separate personal transactions from business payments.
Related: New IRS 1099-K Changes: What You Need to Know
HIgher standard deduction
Even if you’ve itemized deductions in the past, don’t assume that it will be the best choice for 2024. You may end up with a lower tax bill by claiming the standard deduction, which is adjusted annually to account for inflation.
For 2024, the standard deduction is $14,600 for single taxpayers, $29,200 for married couples who file jointly, and $21,900 for heads of household.
If you’re blind or 65 or older, you can claim an additional deduction of $1,950 ($3,900 for joint filers if you’re both 65 or older and blind). If you’re married, you can claim an additional standard deduction of $1,550 for each spouse who falls into one of those categories.
That means a 65-year-old couple can claim a standard deduction of at least $32,300—or even more if one or both are blind. For that reason, most older adults will fare better by claiming the standard deduction than by itemizing.
However, the only way to figure out whether itemizing or claiming the standard deduction is most advantageous is to run the numbers both ways, which tax software programs will do for you. Make sure you assemble all of the receipts for eligible deductions, such as charitable contributions, mortgage interest, property taxes, and unreimbursed medical bills.
Keep in mind, too, that taxpayers who claim the standard deduction are still eligible for a long list of “above the line” deductions, which will lower your adjusted gross income, and other credits available to non-itemizers. For more on those tax breaks, see page 47.
Related: What’s the Standard Deduction for 2024 and 2025?
Check Your Work
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While the IRS audits only a small percentage of taxpayers in person, the agency sends out thousands of letters every year to taxpayers who made errors on their returns. These correspondence audits typically involve a few issues the IRS believes it can resolve without deploying a full-scale audit. Still, these letters can be unsettling, especially if the IRS determines that you owe the government more money.
Even minor errors, such as forgetting to sign and date your tax return, could hold up processing and delay your refund. Here are some common (and avoidable) errors.
Not reporting all of your income
Filing your tax return early will speed up your refund, and it may protect you from tax return fraud because a criminal can’t file a return in your name and pocket your refund if you’ve already submitted your return.
But if you overlook a Form 1099 from your bank or brokerage firm, you’ll probably hear from the IRS. The agency compares statements it receives from financial institutions, employers, and other entities with your tax return, and if it discovers a mismatch, you could owe interest on the amount you should have paid and possibly a late-filing penalty, too.
Misreporting a qualified charitable distribution
QCDs allow individuals who are 70½ or older to contribute money directly from their IRA to a qualified charity, potentially satisfying all or part of their required minimum distribution. The contribution isn’t deductible, but the distribution will count toward your RMD and will be excluded from your taxable income. For 2024, individuals could contribute up to $105,000 through a QCD (for 2025, the maximum is $108,000).
However, reporting a QCD on your tax return can be tricky because the Form 1099-R you receive from your financial institution won’t reflect the QCD.
- When filling out your 2024 Form 1040 (or 1040-SR), include on line 4a the total amount of distributions reported on Form 1099-R.
- Then subtract the amount that was transferred directly to the charity and report the remainder (even if it’s $0) on line 4b.
- Write “QCD” next to line 4b so the IRS knows why the numbers don’t match.
- If you’re using tax software, a drop-down box for line 4b should give you the option to click “QCD.”
You should also obtain documentation from the charity in case you receive inquiries from the IRS, says Miklos Ringbauer, a certified public accountant in Los Angeles.
If you’re interested in making a QCD in 2025, it’s important to understand that the contribution must be made directly from your IRA to charity, Ringbauer adds. If you withdraw the funds from your IRA and send a check to charity, it won’t qualify as a QCD.
Related: What is a QCD?
Failing to file a tax return
If you have a tax bill you can’t afford to pay, the worst thing you can do is nothing. The IRS penalty for failing to file a tax return is 5% of the amount you owe per month, up to a maximum of 25% of the unpaid balance. “That can devastate a person,” Ringbauer says.
The penalty for failing to pay your taxes is less onerous—0.5% of the unpaid balance for the month or part of the month the balance is unpaid, up to 25% of your unpaid taxes. For that reason, if you can’t pay your tax bill by April 15, file your tax return and pay as much as you can. Once you’ve done that, you can explore an installment plan or other payment options the IRS offers. For more information, go to www.irs.gov/payments/payment-plans-installment-agreements.
Hiring an unscrupulous tax preparer
The availability of sophisticated tax software has made it easy for inexperienced or dishonest individuals to create a website and designate themselves as tax preparers, even if they know little or nothing about the tax code.
The IRS has warned taxpayers to be on the lookout for “ghost preparers”—individuals who encourage taxpayers to claim credits and benefits for which they don’t qualify, charge fees based on a percentage of the refund, and then disappear after the return is filed. Other scofflaws pose as tax preparers to steal taxpayers’ identities, the IRS says.
When you sign your tax return, you’re responsible for the information on the return — no matter who prepared it — so it’s in your best interest to hire a preparer you can trust. Start by looking for a preparer who is credentialed, including certified public accountants, enrolled agents, and attorneys. CPAs are licensed by state boards of accountancy, have studied accounting at a college or university, and have passed a rigorous exam.
You can get a list of local certified public accountants from your state’s CPA society. Enrolled agents, who are licensed to appear before the IRS, must pass a rigorous test and meet annual continuing-education requirements. To locate an enrolled agent in your area, go to www.naea.org. Attorneys are licensed and regulated by state courts and/or state bar associations. They must take continuing education classes and satisfy professional ethics requirements.
The IRS provides a resource you can use to search for preparers in your area who hold professional credentials, as well as individuals who aren’t CPAs, enrolled agents, or attorneys but have completed a certain number of continuing education hours. Find it at https://irs.treasury.gov/rpo/rpo.jsf.
Last-Minute Tax Savers
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For the most part, the IRS operates on a calendar-year basis. But some exceptions could reduce your 2024 tax bill while helping you save more for retirement and lower your out-of-pocket health care costs.
Contribute to a retirement account
If you’re not enrolled in a workplace retirement plan, in 2024 you can deduct IRA contributions of up to $7,000, or $8,000 if you were 50 or older. (These contribution limits will remain unchanged for 2025.)
You have until April 15, 2025, to make your 2024 contribution. Contributions to a traditional IRA will reduce your adjusted gross income on a dollar-for-dollar basis, which could also make you eligible for other tax breaks tied to your AGI.
Workers who have a company retirement plan but earn less than a certain amount may qualify to deduct all or part of their IRA contributions. For 2024, this deduction phases out for single taxpayers with AGI between $77,000 and $87,000 and for married couples who file jointly with AGI between $123,000 and $143,000. If one spouse is covered by a workplace plan but the other is not, the spouse who isn’t covered can deduct the maximum contribution as long as the couple’s joint AGI doesn’t exceed $230,000. A partial deduction is available if the couple’s AGI is between $230,000 and $240,000.
If you worked for yourself in 2024 or had a side gig, you can sock away even more money. You have until April 15—or October 15 if you file for an extension—to set up and contribute to a SEP IRA, a retirement plan designed for self-employed workers, small businesses and sole proprietors. For 2024, you can deduct contributions of as much as 20% of net income, up to a maximum of $69,000.
You also have until April 15 to contribute to a Roth IRA for 2024. Contributions to a Roth are after-tax, so they won’t lower your tax bill. But as long as you’re 59½ or older and have owned your Roth for at least five years, withdrawals are tax-free.
Here, too, there are income limits. For 2024, single taxpayers with a modified adjusted gross income of less than $146,000 can contribute the full amount; those with income between $146,000 and $161,000 can make a partial contribution. Married couples who file jointly can make the full contribution if their MAGI is less than $230,000; those with MAGI between $230,000 and $240,000 can make a partial contribution.
In the past, you could make only pretax contributions to a SEP, but legislation enacted in late 2022 allows SEP providers to offer a Roth option.
Related: 401(k) and IRA Contribution Limits for 2024
Set aside funds for health care costs
You have until April 15 to set up and fund a health savings account for 2024. To qualify, you must have had an HSA-eligible health insurance policy that went into effect no later than December 1. The policy must have had a deductible of at least $1,600 for individual coverage or $3,200 for family coverage.
You can contribute up to $4,150 to a 2024 HSA if you had single coverage or $8,300 if you had family coverage. You can stash away an additional $1,000 if you were 55 or older in 2024. Contributions reduce your adjusted gross income. The money in your account will grow tax-free, and withdrawals to pay medical expenses are also tax-free.
Related: Tax Benefits and Hidden Costs of HSAs
Tips for Non-Itermizers
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The Tax Cuts and Jobs Act doubled the standard deduction, so the majority of taxpayers no longer itemize. However, there are numerous deductions and credits available to non-itemizers.
Child adoption credit.
If you adopted a child last year, take advantage of a tax credit to help cover expenses related to the adoption. (A credit is a dollar-for-dollar reduction in your tax bill, making it more valuable than a tax deduction.) For 2024, the adoption tax credit can be taken on up to $16,810 of qualified expenses per child.
You can’t claim the credit for more than you spent on the adoption unless you adopted a child with special needs. In that case, you can claim the full credit even if your expenses were less than the full amount. The credit phases out for families with a 2024 AGI of more than $252,150; those with AGI of more than $292,150 are ineligible.
To qualify, the child you adopted must have been younger than 18 or any age if physically or mentally incapable of caring for himself or herself. If you can’t use the entire credit’s value in the first year you claim it, you can carry forward any remaining amount for up to five years—a helpful provision because some adoptions take several years to complete.
Learn More: The Adoption Tax Credit Explained
College tax credits
If you’re paying for higher education, make sure to take advantage of college-related tax breaks. For parents with a child in college, your best bet is the American Opportunity Tax Credit (AOTC), available for up to $2,500 of college tuition and related expenses (but not room and board) paid during the year. Individuals whose modified adjusted gross income is $80,000 or less ($160,000 or less for married couples filing a joint return) qualify for the full credit. Single taxpayers with MAGI greater than $90,000 and married couples with MAGI above $180,000 are ineligible for the credit. The credit covers all four years of college.
If you went back to school—whether to improve your employment prospects or just because you had a hankering to learn—you may qualify for the Lifetime Learning credit. The full credit is available to individuals whose modified adjusted gross income is $80,000 or less ($160,000 or less for married couples filing a joint return). You cannot claim both this credit and the AOTC for the same student in the same year.
Related: What to Know About the American Opportunity Tax Credit
Educator expense deduction
Teachers, counselors, and principals who spend their own money on school supplies can deduct up to $300 ($600 if spouses who are both educators file jointly). Qualified expenses include books, supplie,s and computer equipment.
Learn More: Educator Expense Tax Deduction for 2024
Student loan interest
If you’re paying off your student loans, you may be able to deduct up to $2,500 in interest, even if you don’t itemize.
To qualify for the full deduction, single taxpayers must have MAGI of less than $80,000; the deduction phases out if your MAGI is between $80,000 and $95,000. For married taxpayers who file jointly, the deduction phases out if your MAGI is between $165,000 and $195,000.
Related: Don’t Miss This Up to $2,500 Deduction for Paying Your Student Loan
Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
