Deductions and Credits for Individuals and Small Businesses in Tax Season 2024
Individual taxpayers or business owners, saving tax is on everyone’s mind. As the tax season approaches, we all look for various ways that can help us minimize our tax bills. Tax credits and deductions are two powerful tools that can help you minimize your tax bill.
Whether you are experienced in handling taxes or new to the process, understanding the potential deductions and tax credits is important.
Here are the popular tax breaks that individual and small business owners can enjoy during Tax Season 2024. Make the most of them to save money while complying with tax laws.
Tax Deductions and Credits Available for Individual Taxpayers
Here are some of the common tax breaks that are available for individual taxpayers:
1.Standard and Itemized Deductions
When it comes to filing your taxes, you often have to choose between standard deductions and itemized deductions.
In 2024, the standard deduction has increased, making it an appealing choice for taxpayers.
However, if you have mortgage interest, charitable contributions, or medical expenses, itemizing your return could be more beneficial. Talk to your tax consultant to make the right choice.
2. Child Tax Credit
Child Tax Credit, or CTC, is available to families with children under the age of 13 years. In 2024, this credit has been increased to $8,000 for one dependent and $16,000 for two (or more) dependents. Families who meet income criteria may qualify for tax savings.
3. Education Tax
Whether you are pursuing education or supporting the education of your dependents, you can take advantage of the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit while filing your taxes.
You can claim up to $2000 spent on books, tuition, and school fees. However, it does not include living or transportation expenses.
4. Homeownership Credits
Homeowners can leverage certain deductions and tax credits too. These include Mortgage Interest Deduction, Property Tax Deduction, and Home Office Deduction. They can all help you save big on your taxes, if you meet the eligibility criteria.
5. Charitable Contributions
Charitable contributions are tax deductible too. So, when making donations to organizations, make use to maintain a record and use it in your tax return to reduce your bill.
Individual taxpayers can donate up to 60% of your adjusted income (AGI), which is your total income minus other deductions.
6. Retirement Contributions
Contributing to retirement accounts like 401(k)s and IRAs not only helps secure your future but also offers tax advantages. Make sure you’re maximizing your contributions in order to take advantage of deductions and tax deferrals.
7. Contributions Made to Health Savings Accounts
Health Savings Accounts (HSAs) offer both tax contributions and flexibility in using funds, for qualifying expenses. So, maximize your HSA contributions, especially if you have a health plan.
8. State and Local Tax Deductions
The deduction for State and Local Taxes (SALT) allows you to subtract up to $10,000 or $5,000 if married filing separately of the amount you pay in state and local income taxes along with property taxes. This deduction offers advantages for individuals residing in states with high tax rates.
9. Energy Efficiency Credits
If you’ve made energy-efficient upgrades to your home, you might be eligible for up to 30% tax credits on installations of solar energy systems, under the Nonbusiness Energy Property Credit or the Residential Energy Efficient Property Credit schemes.
Deductions and Credits for Small Business Owners
Numerous tax deductions and credits are available for small business owners, which can make a substantial difference in the financial health of their business. These include:
1. Section 179 Deduction
This provision is quite valuable for businesses since it allows them to deduct the cost of qualifying equipment and property in the year of purchase instead of spreading it out over multiple years. For the 2024, tax year the maximum deduction allowed is $1,160,000.
2. Qualified Business Income Deduction (QBI)
Entities like proprietorships partnerships and S corporations can benefit from this deduction. They can deduct up to 20% of their business income under QBI, thereby reducing their taxable income.
3. Employee Retention Credit (ERC)
During challenging times, the Employee Retention Credit is available to assist businesses in retaining employees. Eligible employers can claim a tax credit for a portion of wages paid to employees.
4. Deduction for Home Office Expenses
If you run a business from your home, you might qualify for the deduction of home office expenses. This deduction allows you to deduct a portion of your home-related costs, such as rent or mortgage interest, utilities, and maintenance expenses based on the area of your home used for business purposes.
5. Tax Deductions for Business Vehicles
Business owners can claim deductions for expenses related to their vehicles. You have the option to choose between the mileage rate or actual expenses incurred for business use. It’s important to maintain records that support your deduction claims.
6. Exclusion for Qualified Small Business Stock (QSBS)
If you have business stocks, you can take advantage of them through an exclusion called QSBS exclusion. This provision allows you to exclude a portion of the profit made from selling QSBS and potentially reduce or eliminate capital gains taxes.
7. Research and Development (R&D) Tax Credit
The R&D tax credit serves as an incentive for businesses engaged in innovation. It allows them to claim a credit for qualifying research expenses. If your business conducts research activities, this credit can provide benefits.
8. Educator Expenses Deduction
If you’re a school teacher (or a tutor), you can deduct up to $300 as expenses made on classroom supplies. If both you and your spouse are educators and file jointly, you can claim a deduction of $300 each (up to $600 on your return).
9. Employee Benefit Programs
Offering employee benefits can result in tax savings. Consider options such as health savings accounts (HSAs) spending accounts (FSAs) and retirement plans, which may be eligible for tax deductions to your business.
10. State and Local Incentives
Small businesses have access to incentives and credits offered by state and local governments. These include benefits like property tax reductions, investment credits, and incentives for hiring employees.
The Bottom Line
As we prep ourselves for the upcoming tax season, it is crucial to have an understanding of the deductions and credits that are available to us. These deductions and tax credits are offered by IRS to help us save hard-earned money.
However, to make the most of these available tax benefits, it is recommended to work with an experienced tax professional. With in-depth knowledge of the latest tax laws, they can help you navigate the complexities of the tax code and ensure that you claim all deductions and credits.
With their help, you can take maximum advantage of the available tax-saving opportunities to reduce your tax bills, while adhering to tax laws.
So, don’t miss out on your tax benefits this year – start planning for your 2024 tax season today! Contact Quantum Tax Consultants for expert help right away.