New Laws, Bigger Deductions: Changes For The 2024 Tax Season  (2024)

Ready or not, the 2024 tax filing season is here. As of January 29, the IRS is accepting and processing tax returns for 2023. The agency expects more than 128 million returns to be filed before the official tax deadline on April 15, 2024.

As you gather your financial documents, choose your preferred tax software and prepare to file, you may want to read up on some rule changes that could affect you. Among them are higher standard deduction amounts, expanded income tax brackets and changes to business deductions.

Standard Deductions Increased

When filing your taxes, you can choose to claim the standard deduction or to itemize your deductions. The IRS estimates that 90% of tax filers claim the standard deduction, an amount set by the agency that’s linked to your filing status and other factors.

Americans can expect to see larger standard deduction amounts when filing their 2023 tax forms. These higher deduction amounts will result in lower taxes.

Here are the standard deduction amounts for the 2023 tax returns that will be filed in 2024.

Taxpayers who are 65 and older, or are blind, are eligible for an additional standard deduction. For the 2023 tax year, the additional standard deduction amounts are $1,850 for single filers or heads of household and $1,500 for married filers or qualifying widow(er)s.

Taxpayers who itemize their deductions can instead write off expenses such as mortgage interest, charitable contributions and state and local taxes.

Income Tax Brackets Expanded

Along with higher standard deduction amounts, the IRS has adjusted the income tax bracketsfrom the 2022 tax year. The income tax bracket changes mean that, as with higher standard deductions, taxpayers can expect to see a slightly smaller tax bill.

For example, a single taxpayer who has taxable income of $44,000 for 2023 will be taxed at a marginal tax rate of 12%. If the taxpayer had received the same amount in 2022, they would have been taxed at a top rate of 22%.

New 1099-K Reporting Threshold for Payment Apps Delayed

The American Rescue Plan (ARP) of 2021 modified the requirements for reporting transactions involving payment apps, also known as third-party processors. Before the ARP, third-party platforms were required to provide Form 1099-Ks to taxpayers who received $20,000 or more through payment apps and made 200 or more transactions. However, new changes outlined in the ARP reduced the threshold for Form 1099-K reporting to $600 or more.

This change was to take effect this tax season. But feedback from taxpayers and payment processors confused by the new rules led the IRS to delay the new $600 reporting threshold requirement.

The IRS is now treating the 2023 tax year as a transitional period—with Form 1099Ks required only for people receiving $20,000 with 200-plus transactions—and will phase in the new requirements in 2024. For the tax year 2024, payment processors will report transactions of $5,000 or more on Form 1099-K. Taxpayers are slated to receive those forms in January 2025.

Business Owners Can Expect Changes to Deductions

Business Meals Only 50% Deductible

During the pandemic, for the calendar years of 2021 and 2022, business owners were temporarily allowed to deduct 100% of the cost of work-related meals and beverages at restaurants. That provision has lapsed. For the 2023 tax year, deductions for business-related meals and beverages from restaurants are back at 2020 levels—that is, they’re limited to 50% of the cost.

Higher Standard Mileage Rates

Small business owners can claim higher standard mileage rates for business-related transportation. If you use your car for business purposes, you can deduct 65.5 cents per mile driven during the 2023 tax year. The amount is up 3 cents from the 2022 midyear rate.

Changes in Bonus Depreciation

Business owners may be surprised when claiming bonus depreciation, an additional first-year depreciation deduction. Bonus depreciation, implemented by the Tax Cuts and Jobs Act (TCJA) in 2017, allows business owners to write off a large percentage of the cost of a qualified asset.

TCJA allowed business owners to write off 100% of the costs of qualified assets that were placed in service between September 27, 2017, and January 1, 2023. However, for property placed in service in 2023, the percentage of bonus depreciation will decrease by 20% each year, as follows:

• 2023: 80%
• 2024: 60%
• 2025: 40%
• 2026: 20%
• 2027: 0%

Bottom Line

The 2024 tax season has introduced many significant tax changes, whether you are filing a personal or business tax return—or both. Understanding the tax changes will help you take advantage of opportunities to pay less to the IRS this year.