Tax Season is Here: What to Do Before You File  

Key takeaways: 

• The IRS began accepting and processing tax returns on January 27. 
• There are a few key changes this year, including an increase to the standard deduction.  
• If you have a higher-than-expected tax bill, preparing now gives you time to plan how you’ll pay. 

It’s hard to believe, but it’s officially tax season. The IRS began accepting and processing tax returns on January 27, meaning that if you’re ready, you can file your taxes any time.  

While the official deadline isn’t until April 15, instead of waiting until the last minute, take some time to prepare now. You – and maybe even your wallet – will be less stressed come April. Here are steps you can take, along with some key points to keep in mind as you complete your tax preparation. 

Tax preparation steps to take 

1. Get organized. Find receipts and documents related to your income, relevant expenses and contributions. If you try to do it all at the last minute, you’ll likely miss some important things, and you could end up paying more than you should. If you work with a tax professional, this is the time to get in touch and find out what they will need from you, and when. If you don’t work with a tax professional, but think this might be the year to start, start searching for an expert and set up an appointment.  
2. Estimate your obligations. You can look over last year’s tax forms and compare them with basic information from this year to get a good idea of your tax obligation. If you work with tax software, you can run preliminary numbers. You also can download 2024 tax forms from www.irs.gov. Getting a good idea of how much you’ll owe – if anything – will give you time to adjust your budget, save up and/or make other plans for payment.
   
3. Plan now to pay on time or file an extension. If you expect a large tax bill and are worried about paying it, still file your return. And if you think you’ll be unable to file a fully completed return – for whatever reason – by April 15, file an extension. Doing so will give you an additional six months – until mid-October – to file. See Extension of Time to File Your Tax Return for instructions. Why? Because the penalty for filing late is much higher than the penalty for paying late. If you file an extension, it won’t extend the time to pay taxes. You still are expected to pay any amount due by April 15. If you cannot pay, the half-percent penalty for paying late is far less than the 5% penalty for filing late. Filing more than 60 days late without filing an extension incurs a minimum penalty of $485 – or 100% of the tax amount owed, whichever is less.
4. Make contributions to retirement plans. You have until April 15 to make contributions. For tax year 2024, you can contribute up to $7,000 to an IRA. If you’re 50 or older, you can make an additional $1,000 catch-up contribution. If you have a tax-deferred 401(k) or Roth 401(k), you can contribute up to $23,000 – and an additional $7,500 if you are 50 or older. Try to contribute as much as you can to these accounts. For many people, they will qualify as tax deductions. And your future (retired) self will thank you.
5.  Fully contribute to your health savings account (HSA). If you have a high-deductible health plan that supports an HSA, it’s a smart idea to contribute the maximum amount to it. For tax year 2024, that’s $4,150 for an individual and $8,300 for a family – with an extra $1,000 for those age 55 and older. Again, you have until April 15 to make your contribution for 2024. 

Key points for 2024 tax prep 

Every person’s tax situation will be different, so it pays to review filing instructions and documents carefully. These are a few key points many taxpayers will find helpful to keep in mind as they are preparing for tax filing. 

• The standard deduction has increased. Thanks to an inflation adjustment, the standard deduction for 2024 will be $14,600 for single filers and married couples filing separately, $29,200 for married couples filing jointly, and $21,900 for single heads of households (generally unmarried individuals) with one or more dependents. 

• Itemized deductions remain about the same. Most people find that the standard deduction makes the most sense to use. But if you do itemize, deductions are generally about the same in 2024 as they were in 2023. For medical expenses, that means that you can deduct only those expenses that exceed 7.5% of adjusted gross income. 

• The Child Tax Credit stands at $2,000. For 2024, the Child Tax Credit is $2,000 per child under the age of 17. For qualified dependents that are 17 to 18, and full-time college students aged 19 to 24, the credit is $500. These amounts are credits, not deductions, reducing the amount of your income that is subject to tax. The credit is subject to a phased reduction when adjusted gross income reaches $400,000 for joint filers and $200,000 for single filers.  

• The alternative minimum tax (AMT) exemption is higher. While the AMT exemption enacted by the Tax Cuts and Jobs Act is due to expire in 2025, it still will impact households with incomes over $500,000 for tax year 2024. Exemptions are $85,700 for single filers and $133,300 for married taxpayers filing jointly. Phase-out thresholds are $1,218,700 for married couples filing jointly and $609,350 for all other taxpayers.  

Take advantage of the time you have now to get ahead on your taxes. In the process, if you learn you’ll have a larger-than-expected tax bill to pay, you’ll have time to develop a plan. For some homeowners, tapping home equity through a home equity agreement may offer a good option to access that needed cash.