The tax season may not be the most anticipated time of the year, but it has already begun. This year’s tax season kicked off on January 27th, and the Internal Revenue Service (IRS) has received millions of filings as many Americans look forward to receiving tax refunds to help ease financial pressures.
Regardless of whether you are expecting a refund, there are some important things to know in advance to ensure compliance with tax regulations and make the filing process as smooth as possible.
Most Americans are required to file their 2024 tax returns by April 15th. However, you have the option to request an extension (more details on this below).
If your income is below the standard deduction threshold for 2024 – $14,600 for single filers and $29,200 for married couples filing jointly – you may not be required to file taxes. However, the Consumer Financial Protection Bureau (CFPB) advises considering filing as you may be eligible for a refund. Additionally, approximately 100 million people qualify for free federal tax filing.
If your adjusted gross income (AGI) for 2024 is $84,000 or less, you can file your federal taxes for free online through the IRS-operated “Direct File.”
You may also be eligible for free, in-person tax preparation programs such as the IRS Volunteer Income Tax Assistance (VITA), AARP Foundation Tax-Aide, and Tax Counseling for the Elderly (TCE). According to the CFPB, these programs are staffed by IRS-certified tax preparers and meet high-quality standards.
To qualify for these programs, you must meet one of the following criteria:
– Your AGI is typically $67,000 or less;
– You have a disability;
– You are age 60 or older;
– You have limited English proficiency or English is your second language.
When it comes to Free File, there’s an important note. To participate, you will need to claim the standard deduction, which most taxpayers do. Moreover, the Tax Cuts and Jobs Act (TCJA) passed during President Trump’s first term nearly doubled the standard deduction.
The standard deduction reduces your taxable income by a set amount, helping lower your tax liability or increase your refund.
For the 2024 tax year, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly.
If you are over 65 and filing as a single taxpayer, you can claim an additional $1,950 deduction for the 2024 tax year. Married couples over 65 filing jointly can claim an extra $3,900 deduction.
For the 2025 tax year, the standard deduction will increase to $15,000 for single filers and $30,000 for married couples filing jointly.
The Child Tax Credit aims to assist low-income families by providing a tax credit for each child under 17. Parents can claim up to $2,000 per child depending on their income. The credit phases out gradually when a single parent’s AGI exceeds $200,000 or a married couple filing jointly exceeds $400,000.
If the tax credit exceeds your tax liability, you may receive a refund of up to $1,700.
If your income in 2024 was below $66,819, you may qualify for the Earned Income Tax Credit (EITC). The credit amount increases if you have qualifying children. Here is a breakdown of the maximum EITC amounts:
– $632 with no qualifying children;
– $4,213 with one qualifying child;
– $6,960 with two qualifying children;
– $7,830 with three or more qualifying children.
It’s important to note that “earned income” for the EITC includes wages, salaries, bonuses, commissions, tips, and net self-employment income.
To ensure a smooth filing process, you should gather all necessary documents before starting your tax return. A basic principle is to collect all documents relating to your income for the tax year, including income from work, interest, and investments.
Here is a list of documents you may need to collect:
– Last year’s tax return;
– W-2 forms;
– 1099 and 1099-INT forms;
– Bank and investment account statements;
– Checkbook routing and account numbers for direct deposit of refunds;
– Charitable donation receipts;
– Mortgage interest statements;
– Student loan interest documents;
– Records of any deductible expenses if you choose to itemize instead of using the standard deduction.
If you expect a refund, it’s advisable to start filing your taxes early. According to the CFPB, e-filing and opting for direct deposit is the fastest way to receive a refund, usually processed within 21 days. Paper check refunds may take four to six weeks to process.
If you need more time to file your taxes, you can request a tax extension from the IRS. With an approved extension, you have until October 15th to submit your tax return. However, if you owe taxes, payment is still due by April 15th.
The tax season is underway. To ensure a smooth filing process, gather necessary documents before starting your application. Some documents may not be available until March, so keep an eye on your mailbox and emails. If you can utilize free services like Direct File, don’t miss out. Additionally, you may have the opportunity for free in-person tax preparation services.
You also have the option to work with fee-based tax professionals or use paid tax preparation software. Regardless of your choice, understanding these options in advance is crucial. Professional services can help you find more deductions and tax credits to maximize your refund or reduce your tax burden. In many cases, working with a professional, whether online or in person, may be more advantageous than handling your filing entirely on your own.