By Justin Quen, Columnist
The start of a new year is the perfect time to get your finances in order and prioritize tax planning. Taking proactive steps early can simplify the filing process, uncover opportunities to save, and help you approach the season with confidence. Whether you’re an individual, a family, or a small business owner, a little preparation can lead to big rewards.
Here’s how you can make the most of the 2024 tax season:
Organize Your Documents
Good tax preparation begins with organization. Gather all necessary forms and records as soon as they become available. This includes your W-2s, 1099s, K-1s, mortgage interest statements, and receipts for deductible expenses like charitable contributions.
Creating a dedicated folder or digital storage system can save time and prevent the last-minute scramble.
Stay Informed About Tax Law Changes
Tax laws evolve each year, and 2024 is no exception. For example, the standard deduction amounts have increased slightly, which may benefit taxpayers who don’t itemize. Additionally, tax brackets have been adjusted for inflation, potentially changing the rates you’ll pay on your taxable income.
If you plan to itemize, be sure to understand what qualifies as a deduction. The most common itemized deductions include:
- Mortgage interest
- State and local taxes (SALT), capped at $10,000
- Charitable contributions
- Medical expenses exceeding 7.5% of your adjusted gross income (AGI)
By evaluating your deductions early, you can determine whether itemizing or taking the standard deduction is more beneficial.
Contribute to Retirement Accounts
If building your financial future is on your mind, contributing to retirement accounts is a smart move that can also lower your taxable income. For 2024, the contribution limits are:
- 401(k): Up to $23,000 (or $30,500 if you’re 50 or older)
- Traditional and Roth IRAs: Up to $7,000 (or $8,000 if you’re 50 or older)
The best part? You have until April 2025 to make IRA contributions for the 2024 tax year, giving you flexibility to maximize your savings.
Take Advantage of Tax Credits
Tax credits are one of the most powerful tools for reducing your tax liability. Unlike deductions, which lower taxable income, credits reduce your tax bill dollar-for-dollar.
Some key credits to consider include:
- Child Tax Credit: Up to $2,000 per qualifying child under 17.
- Credit for Other Dependents: Up to $500 for dependents who don’t qualify for the Child Tax Credit, such as elderly parents or full-time students over 17.
- Education Credits: The American Opportunity Tax Credit (AOTC) offers up to $2,500 per student for qualified college expenses, while the Lifetime Learning Credit provides up to $2,000 per tax return for continuing education.
Exploring your eligibility for these credits can make a noticeable difference in your tax bill.
Check Your Withholding
The beginning of the year is also an ideal time to review your tax withholding. If you owed a significant amount or received a large refund last year, consider adjusting your W-4 form with your employer. This simple step can help you strike the right balance, keeping more money in your pocket throughout the year while avoiding surprises at tax time.
Document Charitable Contributions
Giving back can be rewarding in more ways than one. Both cash donations and non-cash contributions, such as clothing or furniture, may be deductible if properly documented.
Keep detailed records, including receipts and itemized lists for non-cash donations, to ensure compliance. If you live in Arizona, don’t forget to explore the state’s Charitable Tax Credit, which allows you to direct your tax liability to local organizations.
Track Business Expenses
If you’re a small business owner or independent contractor, meticulous recordkeeping is essential. Keep receipts for supplies, maintain mileage logs, and track home office expenses if applicable.
Remember, self-employment income is subject to both federal income tax and the Self-Employment Tax, which covers Social Security and Medicare. By tracking your expenses accurately, you can significantly reduce your taxable income and save money.
Consider Professional Help
Tax planning can be complex, especially if you’ve started a business, sold a property, or experienced a major life event. Consulting with a CPA can provide clarity and ensure you’re maximizing your savings. A professional can also help navigate new laws and uncover deductions or credits you might otherwise miss.
File Early and Electronically
Filing early not only reduces the stress of last-minute preparation but also ensures you receive any refunds more quickly. Filing electronically is the most secure and efficient option, as it minimizes errors and expedites processing.
Start the Year Strong
Tax season doesn’t have to be overwhelming. By staying organized, staying informed, and planning ahead, you can simplify the process and maximize your financial benefits. From reviewing your deductions to leveraging tax credits, each step you take now sets the stage for success.
About the Author
Justin Quen, a Scottsdale native and licensed CPA, holds a Master’s degree in Accounting from the University of Arizona. He specializes in personalized accounting and tax services for individuals and small business owners, helping clients make informed decisions and reduce stress during tax season.
For assistance with your taxes or financial planning, contact Justin at justin@jqcpa.net or call 602-571-1692.
