As the 2024 tax season opened in January, Matthew Kanter, Aldrich CPAs + Advisors senior manager of private wealth tax, discusses commonly asked questions as taxpayers begin reporting their income and deductions on their tax returns.

Matthew: There are a limited number of things you can do to reduce income for a tax year that has already closed, but 2024 is still young, and there is lots of time to plan for the future. 

If you are looking to reduce your taxable income for 2024, you may want to consider contributing to an Individual Retirement Account (IRA) or Health Savings Account (HSA). Assuming you are eligible to contribute to these accounts, you have until the original filing deadline of the return to make contributions.  

Keep in mind that an income tax deduction will only marginally reduce your total taxes, the tax savings will be equal to the income reduction amount multiplied by your marginal tax rate. Your total cash outlay to achieve this deduction will be greater than simply paying the tax.  

If you find yourself having too much of a refund, you should consider updating your W-4. When you file your tax return, you are really reconciling your tax computations to your “prepayments” that have been made through payroll deductions or quarterly estimates.

Matthew: The Tax Relief for American Families and Workers Act, passed in the House of Representatives on January 31, 2024, expands the benefit of this credit over the 2023 and 2025 tax years and increases the amount of the tax credit that is refundable to taxpayers. Until the bill is signed into law, we cannot comment on its impact directly, but there are things you can do to prepare as it will have retroactive ramifications if signed.  

If you anticipate owing taxes this year, you can make the argument to wait to file your tax return until clear guidance is issued by tax authorities. This will be something for each taxpayer to discuss with their tax advisor, and regardless of the decision, you will want to make sure that necessary extensions are filed and required payments to prevent the assessment of interest and penalties are made. Additionally, for business owners, there are some other portions of this bill that might impact their entity returns related to Research and Development costs and the Employee Retention Credit and warrant a need to wait to file. 

If you anticipate getting a refund this year, you may find yourself with conflicting priorities. You will want to file your return to receive the refund, but you also do not want the risk of having to file an amended return. The IRS Commissioner Danny Werfel has publicly stated that the IRS will be able to retroactively update returns if the bill passes and becomes law.

Matthew:  

Material tax changes often occur the year after an election year. That being said, there are often small extender packages that occur at the end of the year or retroactively throughout the year, like the Tax Relief for American Families and Workers Act, but there is no knowledge of these until they have been proposed in committee and presented to the legislative bodies.  

What I can say is that we do anticipate tax changes between the 2025 and 2026 tax years, as many of the rules from the Tax Cuts and Jobs Act will sunset. It is important for all taxpayers to prepare for this change. At Aldrich Wealth, we are all keeping our eyes set on this transition to help make sure we can help our clients with potential changes.

Matthew: 

The IRS is working with a company called ID.me to help verify the online identity of taxpayers and protect sensitive information. The process of creating an account has immensely improved since the original rollout, and they are continuing to improve the process and service.  

Once you have your account set up, you can access your old tax records, copies of some tax notices and balances, and create payment plans. It also gives tax professionals better access to contact the service on behalf of you.  

Many local and state jurisdictions are setting up and improving their electronic systems too.  As with anything online, it is always important to keep your guard up for bad actors looking to phish your personal information. Be on guard for these malicious attempts and look to use multi-factor authentication tools to protect your privacy.