Tips for 2024 filing: Taxes don’t have to be scary

Everyone needs a little help sometimes. That applies to financial advisors as well. We often work with tax and accounting professionals when helping clients plan for the future, since Arvest does not give tax or legal advice. With tax season upon us, we reached out to one our regular collaborators here in Springfield, Tammy Young of RMMC, CPAs, to help us answer some common questions filers might have during this tax season.

Are there new rules or updates people need to know about?

Young: Yes, some of those changes for 2023 include:

h The Child Tax Credit is now $2,000 for each qualifying child. A child must be under age 17 at the end of 2023 to potentially be a qualifying child;

h The earned income tax credit amounts have increased such as the amount that an eligible taxpayer with no qualifying children may get has increased to $600;

h A clean vehicle tax credit may apply to new and now, previously owned electric vehicles;

h If you make energy improvements to your home after 2022, you may be eligible for a credit of up to 30% of qualifying expenses;

h The Secure Act 2.0 made several changes, but be aware that beginning in 2024, you may be able to roll some Section 529 plan funds into a ROTH IRA. It also increased the required minimum distribution (RMD) age to 73 if you turned 72 in 2023;

h Bonus depreciation decreased to 80%, but Section 179 is still available if you have qualifying purchases;

h As of Feb. 2, Congress is working to pass legislation that could change some 2023 tax laws including the Child Tax Credit, bonus depreciation and R&D credits;

h Be sure to visit IRS.gov or ask your tax filing professional if you think you may qualify for any of these.

Is there a way to predict how much my refund will be?

Young: Refunds are based on your withholding and estimates paid in. The amount of tax you have taken from your pay each cycle is established by the W-4 form you complete for your employer. According to the IRS, the average tax refund for the tax year 2022 was $2,903.

Massey: If you have been getting large refunds, a common recommendation is to consider an adjustment to your withholding amount so you end up with more money in your paychecks each month as opposed to having the bigger refund at the end of the year. This can help those looking for extra money to pay off debt or build savings. Remember that most checking and savings accounts pay interest on balances, while the IRS doesn’t. For those who aren’t using a financial advisor to help calculate withholdings, IRS.gov has a withholding calculator that can help.

What’s the best use for my refund?

Massey: Every situation is different so neither of us can tell anyone how to use their refund. However, since many Americans have little to no savings for emergencies or retirement, a tax refund can be used as the foundation of a rainyday fund or retirement account. And with consumer credit card debt recently surpassing the $1 trillion mark, according to the Federal Reserve, refunds can be used to make sizeable payments towards reducing high-interest debt. This is why it’s important to have a team of professionals in your corner sharing advice that informs your decisions.

What should I be doing now to prepare?

Young: Every taxpayer has access to online services. One of the first steps people can take is to set up their account at IRS.gov/account or sign in and refamiliarize yourself with the tool. Through this portal, users can securely access tax records, make payments or payment arrangements, electronically sign power of attorney authorizations from their tax professionals and check the status of refunds.

Also, it helps to avoid errors that lead to delays if you have all your records organized before starting the process. Now is a good time to gather those records including, W-2, 1099 and 1095-A forms.

Massey: As the saying goes, death and taxes are certain. However, taxes don’t have to be scary. Working with your financial advisor and a tax professional could lead to better outcomes and take some of the trepidation out of the process.