Tax Law Changes For 2024: A Self-Employed Guide

Paying both income and self-employment taxes can put a strain on your wallet. So, keeping yourself updated on tax law changes every year can help you avoid fines and save as much as possible.

The IRS has made some significant changes to filing and deduction limits for 2024. Whether you’re a small business owner, gig worker or freelancer, these changes can impact your tax returns and your overall tax strategy for the upcoming tax season.

Four important tax law changes you need to know

New Form 1099-K threshold delayed to 2024

You will usually receive Form 1099-K if you’ve dealt with any payments made through online platforms. So, if you’re an online seller with a vintage clothes store, you might get a 1099-K by the end of January with a record of all your transactions.

The rules surrounding this form have been through a lot of changes over the past few years. Until 2021, you would get a 1099-K if you make over $20,000 and have more than 200 transactions. But then, the American Rescue Plan lowered this threshold to $600.

But the rule was delayed, so it wasn’t applicable in the 2022 tax year. It is now supposed to be delayed yet until the 2024 tax year, this time with a $5,000 threshold.

E-filing threshold lowered to 10 returns

Starting in 2024, you'll be expected to e-file if the total number of returns you're submitting is 10 or more. This law was enacted to reduce the number of paper returns and increase efficiency. Previously, e-filing was only required if you filed 250 or more of the same type of return.

Say you run a small business with three part-time employees while paying four freelancers amounts for under $600 each. In this scenario, you're not required to send and file Form 1099-NEC for the freelancers. So, you can paper file the three W-2s for your employees since the total returns are below 10.

Let’s use another example. Imagine you operated as a freelance photographer without any employees throughout the year. However, you did hire 15 independent contractors to help you with short-term projects. They each received payments exceeding $600. In this case, you are required to electronically file 15 Forms 1099-NEC to report these payments to the independent contractors.

Updates to energy efficiency tax credits

The Residential Clean Energy Credit was introduced in 2005 to encourage homeowners to switch to solar energy. For the 2023 tax year, homeowners can deduct 30% of their energy costs. This credit is only available to taxpayers who don’t lease their solar panels.

Another tax credit you can claim in 2023 is the Electronic Vehicle (EV) tax credit. This nonrefundable credit is available for both new and used hybrid vehicles. For returns filed in 2024, you can claim up to $7,500 for new vehicles and $4,000 (or 30% of the sale price, if lesser) for used vehicles.

The last tax credit we’ll talk about is the Energy Efficiency Home Improvement Credit. If you made any energy-efficient upgrades to your home in 2023, you could be eligible for a tax credit of up to $3,200. Now, you can claim up to 30% of the cost (an increase from 10% in 2022) for specific qualified improvements.

Student loan payments resume

In June 2023, Congress put an end to the pause on student loan payments. So, from the beginning of September, student loan interest resumed, and payments were due from the following October. While this is unfortunate, you are allowed to write off up to $2,500 of student loan interest when filing your taxes.

2023 tax year update to deduction limits

Now, let’s talk about the general updates the IRS has made for the 2023 tax year. The tax deadline for 2023 taxes is April 15, 2024. Most taxpayers are expected to file and pay their taxes by this date. If you want to apply for a filing extension, you’ll need to do it before this deadline. Applying for an extension will give you until October 15, 2024 to file your returns.

For self-employed individuals with tax liabilities over $1,000, payments have to be made on a quarterly basis. The estimated tax deadlines for 2024 are:

• January 16 (Q4 payment of 2023)
• April 15 (Q1 payment of 2024)
• June 17 (Q2 payment of 2024)
• September 16 (Q3 payment of 2024)
• January 15, 2025 (Q4 payment of 2024)

When filing SE tax, 1099 workers can use business deductions to lower their income and, subsequently, their owed tax. A 1099 tax calculator is an easy tool to help you with this. Vehicle mileage is a popular deduction available to most self-employed individuals who use their car for work.

You can use the standard mileage method or the actual expenses method to deduct your mileage. If you’re using the standard mileage method, know that the IRS has updated the standard mileage rate from 62.5 cents/mile from the second half of 2022 to 65.5 cents/mile for the 2023 tax year.

Another deduction limit increase comes in the form of the Qualified Business Income Deduction (QBID). This is a massive 1099 deduction that self-employed individuals can use to write off 20% of their taxable income.

The deduction comes with its fair share of rules, and the income limit changes every year. For 2023, Taxpayers can claim the full deduction if their qualified income is under $232,000 (for single filers) or $464,200 (for joint filers).

The QBID can be difficult to navigate on your own, so asking a tax pro for help isn’t a bad idea. You can get unlimited tax support from the expert CPAs at FlyFin. Additionally, you can use the built-in calculators to find your estimated taxes, 1099 taxes and any tax penalties you may have.  Best of all, A.I. finds all your business deductions, so you don’t have to put in any extra effort to lower your taxes.  

Moving on to income taxes, the first update is the annual increase of the standard deduction. The IRS updates it every year to adjust for inflation and living costs.

Other deduction limit increases that can impact your federal returns are retirement plan and HSA (Health Savings Accounts) contributions. In 2023, the maximum contribution limits for 401(k) plans were upped to $22,500. The limit was set at $30,000 for those aged 50 and over.

Additionally, the maximum contribution limit for both traditional and Roth IRAs increased to $6,500 ($7,500 for those aged 50 and over). It's worth noting that you have until the April deadline to contribute to your IRA for the 2023 tax year. Plus, you might qualify for a deduction based on your contribution.

For taxes filed in 2024, HSA contribution limits are set at $3,850 for individuals opting for self-only coverage and $7,750 for those choosing family coverage. Individuals aged 55 and above can take advantage of an opportunity to contribute an extra $1,000 through a catch-up contribution. You can deduct both IRA and HSA contributions as an income adjustment on Schedule 1.

What can taxpayers expect from the 2024 tax year?

While there is still some time left before you have to think about your 2024 returns, the IRS has announced some updates that can be useful for you to plan ahead. All of these changes were introduced to combat inflation and rising living costs.

Let’s start with the updated standard deduction for the 2024 tax year.

Another announcement came in the form of the new 2024 tax brackets. Each year, the IRS typically adjusts the tax code to accommodate for inflation. This adjustment aims to avoid "tax bracket creep," which is when inflation pushes you into a higher tax bracket, even if you made the same amount as last year.

In 2024, even if your income increases, taking inflation into consideration within the tax code could shield you from moving into a higher tax bracket and might even place you in a lower bracket. This means you might actually get a slightly bigger paycheck in 2024, even if you make the same amount of money.

Lastly, if you're on Social Security, you're in for a 3.2% raise in 2024. Plus, since New Year's Day falls on a holiday, you can expect your first bigger SSI check to roll in by the end of December.

Staying up-to-date on tax laws is a necessary part of being a taxpayer. Knowing all the tax law changes for 2023 and 2024 can help you stay on top of your filing and keep tax season a stress-free time.