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What Are The Major Changes To Tax Laws in 2024?
What Are The Major Changes To Tax Laws in 2024?
Navigating tax law can feel overwhelming, especially with the new changes rolling out in 2024. However, keeping up with these changes is essential for both individuals and businesses to stay compliant and make the most of their tax situations.
One big update is the revised requirements for the 1099 form, which impacts freelancers, independent contractors and small business owners who need to report different types of income. By getting familiar with the specifics of the laws and taxes changes, you'll be better equipped to keep your financial affairs in good shape.
Table of contents
Income tax law changes
Due to inflation in 2023, the income tax brackets for individuals are much wider for 2024, although the tax rates remain the same. This means that when you fill out your IRS tax forms, you might find yourself in a different bracket than last year.
For self-employed individuals, the Schedule C tax form will still be used to report income and expenses, but it's important to stay updated on any changes that might affect your deductions and credits.
Additionally, those who receive income reported on a 1099 tax form should be aware of the 1099 changes for 2024. These changes could impact how you report income from your freelance work.
1099 threshold change for 2024
You will typically receive a 1099 form if you’ve processed payments through online platforms, more specifically, a 1099-K form.
The rules for this 1099 form have changed a lot in recent years. Up until 2021, you would receive a 1099-K if you made over $20,000 and had more than 200 transactions. The American Rescue Plan then lowered this threshold to $600.
However, this tax law was delayed and didn’t apply to the 2022 tax year. Now it's delayed again, with the new 1099 threshold for 2024 expected to be $5,000.
This form has important income information that helps you calculate your self-employment taxes. It doesn’t need to be filed by the receiver, but you should keep a copy of it in your records.
New tax laws for different business structures
When starting a business, making the right choices, especially regarding taxes, can significantly impact your success. One of the key decisions you'll face is selecting the best business structure for your needs. So before you start to weigh the pros and cons of an S corp vs C corp, there are a few tax law changes you need to keep in mind.
The Qualified Business Income Deduction (QBID)
Another 1099 change for 2024
Roth IRA
A Roth IRA is a retirement account that comes with tax perks. Unlike traditional IRAs, you use money that’s already been taxed to contribute to a Roth IRA, so you don’t get a tax break upfront.
However, the money you make from investments grows without being taxed and when you retire, you can take it out without paying taxes on it. This setup can be a good choice, especially if you expect to be in a higher tax bracket when you retire.
For 2023, the Roth IRA contribution limit is $6,500 for those under 50, with an additional $1,000 catch-up contribution allowed for those 50 and older. As part of the new tax laws in 2024, the Roth IRA contribution limit will increase to $7,000 for those under 50, with the catch-up contribution remaining at $1,000 for those 50 and older.
Capital gains tax
When you sell a capital asset for more than its original value, the profit you make is called a capital gain. This applies to investments like bonds, real estate or stocks, as well as personal assets like boats or cars.
Capital gains taxes are applied to this profit. These taxes are progressive, similar to income taxes, but the rate depends on what you sold, how long you owned it, your taxable income and your filing status.
Short-term capital gains (assets held for a year or less) are taxed at ordinary income tax rates, ranging from 10% to 37%. Long-term capital gains (assets held for over a year) are taxed at 0%, 15% or 20%.
Child Tax Credit
When talking about laws and taxes, it’s important not to forget tax credits. In some cases, credits may be more useful than deductions as they can directly reduce your tax bill. The Child Tax Credit provides families with a tax break if they have eligible children.
Families can receive up to $2,000 per child, but only a portion of it is refundable. This means if the credit exceeds the amount of taxes owed, you might not receive the remaining money as a refund. There was an expectation that the refund limit would rise in the 2024 tax year but the bill remains unpassed by the end of the 2024 tax season.
FlyFin’s team of expert CPAs offers unlimited tax support for self-employed individuals looking for help with their tax returns. They can answer questions about deductions, property tax and credits along with preparing and filing your returns. FlyFin also offers free audit insurance and AI finds all your deductions to save you the most possible.
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