Ultimate Guide to US Taxes 2024: Filing Basics, Deductions, and More

Navigating the intricate landscape of taxes is a perennial task for many individuals and businesses alike. As we delve into the tax year 2024, it becomes paramount to comprehend the fundamental aspects of taxation, from filing basics to special considerations. This comprehensive guide aims to illuminate the intricacies of US taxes in 2024, offering an exhaustive dive that covers everything from income and deductions to tax refunds and audits. Whether you’re a seasoned taxpayer or a newcomer to the world of taxes, this guide will serve as your compass, providing essential information, practical advice, and valuable resources to help you navigate the tax terrain with confidence and clarity. So let’s embark on this journey together, unraveling the complexities of taxes and empowering ourselves to make informed financial decisions.

Tax Filing Basics

Tax Year vs Filing Season

When it comes to US taxes, understanding the distinction between the tax year and the filing season is crucial. In 2024, taxes pertain to income earned during that year, while tax returns are filed the following year, in 2025.

Filing Deadline

For most taxpayers, the deadline to file taxes for the 2024 tax year is April 15, 2025. It’s essential to mark this date on your calendar to avoid potential penalties for late filing.

Extensions are available for those who need more time. Taxpayers can file for an extension, extending their deadline until October 15, 2025. However, it’s important to note that an extension to file does not extend the deadline to pay any taxes owed.

Tax Forms and Resources

The Internal Revenue Service (IRS) is the primary authority for tax matters in the United States. Their website, IRS.gov, is a valuable resource for taxpayers, providing access to forms, publications, and tools to assist in the tax-filing process.

Additionally, the IRS offers Free File options, allowing eligible taxpayers to prepare and file their federal tax returns electronically for free. This service is available through the IRS website, providing a convenient and cost-effective way to fulfill tax obligations.

Income and Taxable Income for 2024

What is Taxable Income?

Taxable income refers to the portion of your gross income that is subject to taxation after deductions and adjustments have been accounted for. In simple terms, it’s the income on which you are required to pay taxes to the government.

Types of Income

1. Wages and Salaries: This includes earnings from employment, whether you’re a full-time employee, part-time worker, or self-employed individual.
2. Tips: Any gratuities received for services rendered, such as those in the hospitality industry, are considered taxable income.
3. Interest and Dividends: Income earned from interest on savings accounts, certificates of deposit, or dividends from investments in stocks or mutual funds is taxable.
4. Capital Gains: Profits generated from the sale of assets, such as stocks, real estate, or other investments, are subject to capital gains tax.
5. Business Income: Income generated from a sole proprietorship, partnership, or corporation is considered taxable income.
6. Retirement Income: Distributions from pensions, individual retirement accounts (IRAs), or other retirement plans are generally taxable.
7. Social Security: While not all Social Security benefits are taxable, some recipients may have to pay taxes on a portion of their benefits depending on their total income.
8. Unemployment Benefits: Payments received from state unemployment compensation programs may be taxable income, depending on the specific state laws.
9. Other Income Sources: This category encompasses any additional sources of income not explicitly mentioned above, such as rental income, alimony, or royalties.

Comprehension of these various types of income is essential for accurately reporting taxable income and fulfilling tax obligations.

Tax Deductions

Tax deductions play a vital role in reducing taxable income, ultimately lowering your tax bill. By deducting certain expenses from your gross income, you can decrease the amount of income subject to taxation. Common deductions include:

• Standard Deduction: The standard deduction is a set amount that taxpayers can subtract from their adjusted gross income. For the tax year 2024, the standard deduction has been increased, providing taxpayers with a larger deduction.
• Mortgage Interest: Interest paid on a mortgage for a primary residence or a second home may be deductible, subject to certain limitations.
• State and Local Taxes (SALT) Deduction: Taxpayers can deduct state and local income taxes, as well as property taxes, up to a certain limit. However, the SALT deduction is now limited, impacting taxpayers in states with high income and property taxes.
• Charitable Contributions: Donations made to qualified charitable organizations are deductible, providing an incentive for philanthropy.
• Medical Expenses: Qualified medical expenses that exceed a certain threshold as a percentage of your adjusted gross income may be deductible. It’s important to note that not all medical expenses are deductible, and the threshold can vary.

Tax Credits

Unlike deductions, tax credits directly reduce the amount of tax owed, offering a dollar-for-dollar reduction in tax liability. Common tax credits include:

• Earned Income Tax Credit (EITC): The EITC is a refundable tax credit designed to assist low-to-moderate-income individuals and families. Eligibility for the EITC is based on earned income and household size.
• Child Tax Credit: This credit provides financial assistance to families with qualifying children. The Child Tax Credit has been expanded for the tax year 2024, offering increased benefits to eligible families.
• Dependent Care Credit: Taxpayers may be eligible for a credit for expenses paid for the care of qualifying dependents, such as children or disabled adults, to enable the taxpayer to work or actively look for work.
• Education Credits: Various education-related tax credits, such as the American Opportunity Credit and the Lifetime Learning Credit, help offset the costs of higher education for eligible students and their families.

Tax Brackets and Rates for 2024

Seven Federal Income Tax Brackets (2024)

The US federal income tax system consists of seven tax brackets, each with its own corresponding tax rate. These brackets are as follows: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The tax rate applied to your income depends on which bracket your taxable income falls into.

Tax Brackets Depend on Filing Status

Your filing status, such as single, married filing jointly, married filing separately, or head of household, determines which tax brackets apply to you. Each filing status has its own set of tax brackets, with different income thresholds and tax rates.

 

Marginal Tax Rate

The concept of marginal tax rates is essential for understanding how the US tax system works. Your marginal tax rate is the tax rate applied to the last dollar of your income within a particular tax bracket. As your income increases, you may move into a higher tax bracket, resulting in a higher marginal tax rate on additional income earned.

For example, let’s say you’re a single taxpayer with taxable income of $50,000 in 2024. According to the tax brackets for single filers, your income falls into the 22% tax bracket. However, this doesn’t mean that all your income is taxed at 22%. Instead, your marginal tax rate is 22%, meaning that only the portion of your income that falls within the 22% tax bracket is taxed at that rate. The remainder of your income is taxed at the lower rates applicable to the lower tax brackets.

Knowing how tax brackets and marginal tax rates work can help you make informed decisions about income, deductions, and tax planning strategies to optimize your tax situation.

Additional Taxes

Social Security and Medicare Taxes (FICA)

• FICA stands for the Federal Insurance Contributions Act, which mandates the collection of Social Security and Medicare taxes. For most employees, these taxes are withheld from their paychecks by their employers.
• The current rates for FICA taxes are 6.2% for Social Security and 1.45% for Medicare, totaling 7.65% of earned income. However, there is a maximum limit on Social Security taxes, which is adjusted annually. For 2024, the maximum amount of earned income subject to Social Security tax is $147,000.

Self-Employment Tax

• Self-employed individuals are responsible for paying both the employer and employee portions of Social Security and Medicare taxes, commonly referred to as self-employment tax. As of 2024, the self-employment tax rate is 15.3%, which consists of 12.4% for Social Security and 2.9% for Medicare.
• Unlike FICA taxes, there is no maximum limit on the amount of self-employment income subject to Social Security tax. However, the Medicare portion still applies to all self-employment income.

State and Local Taxes

• In addition to federal taxes, individuals may also be subject to state and local taxes, which can vary significantly depending on their location.
• State taxes may include income tax, sales tax, and property tax, among others. The rates and rules governing these taxes can vary widely from state to state.
• Similarly, local taxes, such as city or county taxes, may also apply depending on where you live or work.
• It’s important to be aware of state and local tax obligations and to understand how they impact your overall tax liability.

Planning for additional taxes beyond federal income tax is crucial for accurately budgeting and managing your finances.

Withholding and Estimated Taxes

Withholding

Withholding refers to the process by which employers deduct income tax from employees’ paychecks and remit it to the government on their behalf. The amount of tax withheld depends on various factors, including the employee’s filing status, income level, and the number of allowances claimed on their Form W-4.

Employees typically complete a Form W-4 when starting a new job or whenever their personal or financial circumstances change. This form helps employers determine the appropriate amount of tax to withhold from each paycheck.

Estimated Taxes

Estimated taxes are payments made to the IRS on income that is not subject to withholding, such as self-employment income, interest, dividends, or rental income. Individuals who expect to owe $1,000 or more in tax after subtracting withholding and refundable credits are generally required to make estimated tax payments.

Self-employed individuals, freelancers, independent contractors, and sole proprietors are typically required to pay estimated taxes since they do not have taxes withheld from their income by an employer.

Estimated tax payments are made quarterly throughout the year, with payment due dates falling on April 15, June 15, September 15, and January 15 of the following year. It’s important to accurately estimate your tax liability and make timely payments to avoid penalties and interest.

Knowledge of the concepts of withholding and estimated taxes is essential for ensuring compliance with tax laws and avoiding unexpected tax liabilities.

Paying Your Taxes in 2024

Payment Options

Taxpayers have several options for paying their taxes to the IRS:

• Electronic Funds Transfer: Taxpayers can make payments directly from their bank accounts using the IRS’s Electronic Federal Tax Payment System (EFTPS). This method is secure and convenient, allowing taxpayers to schedule payments in advance.
• Check: Taxpayers can also pay by mailing a check or money order to the IRS. It’s essential to include the appropriate payment voucher and ensure that the payment is postmarked by the due date.
• Credit Card: The IRS accepts tax payments by credit or debit card through authorized payment processors. However, taxpayers should be aware that processing fees may apply, depending on the payment processor.

Tax Extensions

If you need more time to file your tax return, you can request an extension by filing Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. It’s important to note that the extension extends the filing deadline, not the payment deadline.

By filing Form 4868, you can get an additional six months to file your tax return. However, any taxes owed must still be paid by the original due date to avoid penalties and interest. Estimate your tax liability as accurately as possible to avoid underpayment penalties.

With an understanding of the various payment options and the process for requesting a tax extension you can better manage your tax obligations effectively and avoid unnecessary penalties.

Filing Your 2024 Tax Return

Filing Electronically

Filing your tax return electronically is widely regarded as the most efficient and recommended method. Electronic filing offers numerous benefits, including faster processing, reduced errors, and quicker receipt of any refund owed.

The IRS encourages taxpayers to e-file their tax returns, as it streamlines the process for both taxpayers and the government.

Tax Software

There are numerous tax software options available to assist taxpayers in preparing and filing their tax returns—here’s a list of the best ones from NeardWallet.com. Many of these software programs offer user-friendly interfaces, step-by-step guidance, and error-checking features to ensure accuracy.

Some tax software providers offer free filing options for taxpayers with simple tax situations, while others may charge a fee for more complex tax returns or additional services.

Tax Professionals

For taxpayers who prefer personalized assistance or have more complicated tax situations, hiring a certified public accountant (CPA) or enrolled agent (EA) can be beneficial.

CPAs and EAs are licensed professionals with expertise in tax preparation and planning. They can provide tailored advice, maximize deductions and credits, and help taxpayers navigate complex tax laws.

While hiring a tax professional typically involves a fee, many taxpayers find the peace of mind and potential tax savings to be well worth the investment.

Whether you choose to file electronically using tax software or seek assistance from a tax professional, the key is to ensure that your tax return is accurate, timely, and compliant with IRS regulations.

Tax Refunds and Audits

Tax Refunds:

• A tax refund is the difference between the amount of taxes you’ve paid throughout the year and the amount of taxes you actually owe. If you’ve overpaid your taxes, either through tax withholding from your paycheck or estimated tax payments, you may be eligible for a refund.
• Tax refunds are typically issued by the IRS after they have processed your tax return and verified that you are owed a refund. Refunds can be issued via direct deposit to your bank account or by paper check through the mail.
• To expedite the processing of your refund, it’s recommended to file your tax return electronically and choose direct deposit as your preferred refund method. This can result in faster receipt of your refund compared to filing a paper return.

Tax Audits:

• A tax audit is a review conducted by the IRS to verify the accuracy of your tax return and ensure compliance with tax laws. While the likelihood of being audited is relatively low for most taxpayers, the IRS may select your return for review based on various factors, including discrepancies or red flags.
• If you’re selected for an audit, it’s essential to be prepared with documentation to support the information reported on your tax return. This may include receipts, invoices, bank statements, and other records that substantiate your income, deductions, and credits.
• Respond promptly to any requests for information or documentation from the IRS and cooperate fully throughout the audit process. Failure to comply with IRS inquiries or provide adequate documentation could result in penalties or additional tax assessments.

While receiving a tax refund can be a welcome financial boost, it’s important to be aware of the possibility of tax audits and to maintain accurate records to support your tax return in the event of an audit.

Special Tax Considerations in 2024

Changes for 2024

Tax laws and regulations are subject to change, and it’s essential to stay informed about any updates that may affect your tax situation. The IRS regularly updates its website with information about changes to tax laws, new deductions or credits, and other relevant updates. Checkout the latest from the IRS here.

So, as you prepare to file your taxes for the 2024 tax year, take the time to review the IRS website and familiarize yourself with any changes or updates that may impact your tax return.

Specific Situations

Taxpayers with specific or complex tax situations, such as owning a business, investments, rental properties, or other unique circumstances, may benefit from consulting a tax professional.

Certified public accountants (CPAs), enrolled agents (EAs), and other tax professionals have the knowledge and expertise to navigate complex tax laws and regulations, maximize deductions and credits, and ensure compliance with tax requirements.

Consulting a tax professional can provide peace of mind and may result in potential tax savings or other benefits for taxpayers with complex financial situations.

Whether you’re navigating changes to tax laws or have specific tax considerations to address, staying informed and seeking professional advice when needed can help ensure that you meet your tax obligations effectively and efficiently.

2024 Tax Resources

1. IRS Website

The Internal Revenue Service (IRS) website, IRS.gov, is the primary source of information for federal tax matters in the United States. Taxpayers can access a wide range of resources, including tax forms, publications, instructions, and tools to help them understand and fulfill their tax obligations.

2. Tax Foundation

The Tax Foundation is a nonpartisan tax policy research organization that provides analysis and insights on tax issues at the federal, state, and local levels. Their website, taxfoundation.org, offers research reports, tax data, and interactive tools to help taxpayers and policymakers make informed decisions about tax policy.

3. National Association of Enrolled Agents (NAEA)

The National Association of Enrolled Agents (NAEA) is a professional organization representing enrolled agents, who are federally licensed tax practitioners authorized to represent taxpayers before the IRS. The NAEA website, naea.org, provides resources, education, and support for enrolled agents and taxpayers seeking assistance with tax matters.

These resources offer valuable information and support for taxpayers, whether they’re seeking guidance on tax compliance, policy analysis, or professional tax assistance.

Note: It’s recommended you consult the IRS website, or even better, a tax professional for specific advice.