Midyear Tax Check-In: Do These 4 Things Now for an Easier Tax Season in 2024
While it may seem as if you just filed your 2023 tax return, it’s already a good time to look ahead and get ready for the 2024 filing season. In many cases, the earlier you can start preparing for the upcoming tax filing season, the better off you’ll be when it comes to the bottom line of how much you’ll owe.
At the very least, planning ahead can help prevent the last-minute panic many taxpayers feel as April 15 rapidly approaches. Although you won’t have most of your vital tax information in your hands until January or February of 2024, here are some of the steps you can take in mid-2023 to make your life easier during the tax season of 2024.
Understand Any Changes to Tax Credits and Deductions
In most years, the IRS makes changes to fundamental tax-filing items such as the amount of the standard deduction and the qualification levels for various tax credits. The size of the standard deduction may help you determine whether or not you should itemize your taxes. For tax year 2023, standard deduction amounts are as follows:
- $27,700 for married couples filing jointly
- $13,850 for single taxpayers and married individuals filing separately
- $20,800 for heads of households
Changing tax credit information is important to know, because it may mean that you will no longer qualify for a credit that you’ve claimed before, or perhaps that you’ll be able to qualify for one for the very first time.
One of the most discussed credits for tax year 2023 is the $7,500 clean vehicle credit, which has additional qualification requirements for those bought on or after April 18.
Look Up What Your Tax Bracket Is Likely To Be
Just like the IRS usually modifies credits and deductions every tax year, it also changes the amount of income you need to earn for each individual tax bracket. In some years, the tax brackets themselves also change, although this is not the case for tax year 2023.
Although you can’t usually tell exactly how much income you’re going to earn in a given year, by the middle of the year, you can often make a good estimate. If you’re a salaried worker, the biggest variable is likely to be your year-end bonus, if any.
Estimating Your Income
In most cases, you can double the amount of income you’ve already earned and add in the bonus you earned in 2022 to get a fair approximation, perhaps subject to a slight revision upwards or downwards depending on your perceived performance.
If you’re self-employed, it may be harder to know exactly what your year-end earnings will reach by year-end, but you should have a better guess by midyear 2023 than you did at the beginning of the year.
Here are the tax brackets for tax year 2023:
- 35% for incomes over $231,250 ($462,500 for married couples filing jointly)
- 32% for incomes over $182,100 ($364,200 for married couples filing jointly)
- 24% for incomes over $95,375 ($190,750 for married couples filing jointly)
- 22% for incomes over $44,725 ($89,450 for married couples filing jointly)
- 12% for incomes over $11,000 ($22,000 for married couples filing jointly)
- 10% for incomes of $11,000 or less ($22,000 for married couples filing jointly)
Maximize Your Tax-Advantaged Contributions
When it comes to reducing your taxes, nothing works better than lowering the amount of taxable income you receive. Of course, you shouldn’t just “give up” income in order to reduce your taxes. But there are ways to earn some of that income without it becoming a tax liability.
One of the best options is to sock away as much as you can into a tax-advantaged retirement plan like a 401(k) or IRA. In most cases, money you put into these types of plans doesn’t count as taxable income, reducing the amount you owe.
The middle of the year is the perfect time to take stock of how much you’ve already put into a tax-advantaged account and plan out your contributions for the rest of the year to hit the maximum allowable amount.
For tax year 2023, workers are allowed to put up to $6,500 into an IRA or $22,500 into a 401(k) plan. For both plans, workers 50 and older are allowed to put in additional money — $1,000 in the case of an IRA or $7,500 for a 401(k) plan.
Manage Your Income
You can’t always control how much you’ll get paid, but you may be able to manage your income so that you earn it in the most tax-efficient way.
For example, if you’re due a big year-end bonus that would push you into a higher tax bracket, ask if there’s a way that you can actually receive that money in early January instead of late December. This could potentially push your tax liability into 2025 instead of 2024, giving you more time to figure out how to reduce its taxable impact.
Another potential option is to see if you can get that bonus deposited directly into your 401(k) or other tax-advantaged account so that it won’t show up as taxable income when you file your return.
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