U.S. Tax Law Changes: What Businesses and Individuals Need to Know
Tax law changes in the U.S. can have significant impacts on both individuals and businesses. Staying on top of these updates is crucial to ensure compliance and maximize potential tax benefits. In 2024, several key changes have emerged that you should be aware of.
1. Inflation Adjustments to Tax Brackets
One of the most significant updates each year is the adjustment of tax brackets for inflation. For 2024, the IRS has adjusted the federal income tax brackets, which can affect the amount of tax withheld from paychecks. These changes aim to prevent “bracket creep,” where inflation pushes taxpayers into higher income brackets, even though their purchasing power hasn’t increased significantly.
What to Do: Review the updated tax brackets to ensure you’re withholding the correct amount of tax. Individuals and businesses should consult with a tax professional to adjust their payroll and tax planning accordingly.
2. Standard Deduction Increases
In 2024, the standard deduction has increased to reflect inflation. For single filers, the deduction has risen by about $900, and for married couples filing jointly, it has increased by about $1,800. This adjustment lowers the taxable income for those who take the standard deduction, potentially reducing overall tax liability.
What to Do: If you typically take the standard deduction, review these changes and see how they impact your 2024 tax filing. Those who itemize should weigh the benefits of taking the standard deduction versus listing individual deductions.
3. Retirement Contribution Limits
Another update to the tax laws involves the contribution limits for retirement accounts such as 401(k)s and IRAs. For 2024, the maximum contribution limit for a 401(k) has increased by $500, allowing individuals to save more on a pre-tax basis. IRAs have also seen a slight increase in contribution limits.
What to Do: Maximizing retirement contributions can lower taxable income, so take advantage of these increased limits. Review your contribution plans for 2024 and adjust your payroll deductions or retirement plan contributions accordingly.
4. Business Tax Credits and Deductions
For businesses, 2024 brings several changes to tax credits and deductions:
- Research and Development (R&D) Tax Credit: The R&D tax credit remains a key deduction for businesses investing in innovation. The IRS has clarified eligibility criteria for companies looking to claim this credit.
- Energy Efficiency Tax Credits: Businesses that invest in renewable energy solutions or improve their energy efficiency can take advantage of extended and expanded energy tax credits. This includes credits for solar energy installations, electric vehicle charging stations, and energy-efficient building improvements.
What to Do: Businesses should assess eligibility for these credits and consider making qualifying investments in 2024 to reduce their overall tax burden.
5. Child and Dependent Care Tax Credit
For parents and caregivers, the Child and Dependent Care Tax Credit continues to be a critical way to offset childcare costs. In 2024, income thresholds for eligibility have been adjusted, potentially allowing more taxpayers to qualify for the full credit. Additionally, expenses that qualify for this credit have been expanded, covering a wider range of care services.
What to Do: If you are a parent or caregiver, check your eligibility for this credit. It can significantly reduce your tax liability if you incur costs related to child or dependent care.
6. Corporate Tax Rate Stability
Though there haven’t been major changes to the corporate tax rate itself in 2024, businesses should be aware of possible future legislation that may impact corporate taxation. It’s always essential to stay vigilant about potential policy changes that could affect tax rates or introduce new compliance requirements.
What to Do: Maintain close communication with a tax advisor to stay updated on any potential future changes in corporate tax policy. Being proactive can help you better prepare for any shifts in the tax landscape.
7. State-Level Tax Law Changes
While federal tax law changes get the most attention, state-level updates can also have a major impact on your tax obligations. Several states have introduced new tax legislation, including changes to income tax rates, property taxes, and business taxes.
What to Do: Check for updates to your state’s tax laws, especially if you operate a business across multiple states. Keeping up with local tax requirements ensures compliance and prevents unexpected liabilities.
