The Ultimate Guide to Navigating Tax Filing Season

February 13, 2024

Gather up and organize your tax documents

Compile your tax documents and organize them. Print off digital documents so they are all together (unless you are e-filing) for a more manageable filing year.

Determine your filing status

Your filing status is the rate at which income is taxed. There are five filing statuses: single, married filing separately, married filing jointly, head of household, and qualifying widow(er) with dependent child filing status.

Check if you qualify for tax exemptions, deductions, or credits

• Tax deductions – Tax deductions reduce your taxable income, potentially lowering the tax you owe. A few examples include medical expenses, property taxes, and charitable contributions.
• Tax exemption – Tax exemptions include income or transactions that are free from tax at the federal, state, or local level. These include some non-profits, specific veterans (for example, disabled veterans), and income from some types of investments like municipal bonds or 401(k)s.
• Tax credit – Tax credits directly reduce the amount of your tax bill. There are either refundable or nonrefundable credits. Examples include the earned income tax credit (refundable) and saver’s credit (nonrefundable).

Consider filing electronically (e-File)

The IRS has partnered with several companies to provide electronic filing to the public. Some of these options include TurboTax, H&R Block, and TaxSlayer.

Consult a financial professional

A financial professional can work with you to get the most benefit from your tax filing.

Tax Rates

For the 2024 tax year, according to the IRS, the top tax rate remains 37% for individual single taxpayers with incomes greater than $609,350 (731,200 for married couples filing jointly).

Other marginal tax rates include:

Married Filing Jointly

• 35% for incomes over $243,725 ($487,450 for married couples filing jointly)
• 32% for incomes over $191,950 ($383,900 for married couples filing jointly)
• 24% for incomes over $100,525 ($201,050 for married couples filing jointly)
• 22% for incomes over $47,150 ($94,300 for married couples filing jointly)
• 12% for incomes over $11,600 ($23,200 for married couples filing jointly)
• The lowest rate is 10% for incomes of single individuals with incomes of $11,600 or less ($23,200 for married couples filing jointly).

More tax rate information for 2024:

• The Alternative Minimum Tax exemption, which impacts approximately 0.8% of the U.S. population, goes into effect if income is above the annual AMT exemption amount. This generally applies to taxpayers with high incomes, ensuring these taxpayers pay at least the minimum tax amount owed. Their tax is calculated under regular tax rules and AMT rules, and they pay the higher amount of the two. For 2024, the AMT exemption amount is $85,700 and starts to phase out at $609,350 ($133,300 for married couples filing jointly whose phase out begins at $1,218,700)
• The Earned Income Tax Credit amount is $7,830 for qualifying taxpayers in 2024. To qualify, you must meet the basic rules:
• Must be a U.S. citizen or resident alien for the entire year.
• Have a valid social security number by the due date of your 2023 tax return.
• Have an earned income through working under $63,398.
• Have investment income below $11,000 in the 2023 tax year.
• Will not file form 2555 for foreign earned income.
• Qualify for the rules of separation from your spouse and not filing a joint tax return.

*  There are also special qualifying rules for members of the military, clergy, and taxpayers and their relatives with disabilities.

• The monthly limitation for the qualified transportation fringe benefit and qualified parking is $315.
• The dollar limitation for employee salary reductions for contributions to health flexible spending arrangements is $3,200.
• For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount is $640.
• For participants with self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,800 and not more than $4,150. The maximum out-of-pocket expense amount for self-only coverage is $5,550.
• For family coverage in a Medical Savings Account, the annual deductible is not less than $5,550 and cannot be more than $8,350. The out-of-pocket expense limit for family coverage is $10,200.
• The foreign-earned income exclusion is $126,500.
• The lifetime gift and estate tax exemption amount is now $13,610,000 (this amount may significantly decrease after Dec. 31, 2025, when the Tax Cuts and Jobs Act sunsets unless policymakers extend these provisions).
• The annual gift exclusion is now $18,000.
• The maximum credit allowed for adoptions is the qualified adoption expenses up to $16,810.
• The Lifetime Learning credit applies to individuals who are enrolled in an eligible educational institution (colleges, universities, or technical schools offering education beyond high school) and taking eligible courses (those that improve or acquire job skills). They must also have a modified adjusted gross income (MAGI) of less than $80,000 for single filers and $160,000 for joint filers (beyond this limit, the credit phases out). The tax credit is worth up to 20% of the first $10,000 of qualified tuition and related expenses paid during the taxable year for a maximum credit of $2,000.

Items that are unaltered by indexing due to the Tax Cuts and Jobs Act of 2017. This may change upon sunsetting of the Tax Cuts and Jobs Act at the close of 2025.

• The personal exemption remains at 0 (line 5 of your 1040, which states that you want the most amount of tax taken out of your pay each pay period). If you put 1, for example, less taxes are withheld from your paychecks, so you get more money now with a smaller refund.
• There is no limitation on itemized deductions.

Protecting Yourself from Tax Identity Theft

Identity theft is a severe problem in today’s technological world. To help mitigate the risk of identity theft, consider taking these steps:

Secure your devices

Always keep your devices on your person or in a secure location, and ensure your passwords are strong.

Keep your social security number private

Criminals steal your social security number in an attempt to obtain credit or even a job in your name.

Regularly monitor your accounts

Monitoring your accounts on a regular basis can help you recognize if someone is using your identity to file a fake tax return to claim a fraudulent refund. They may also use this information to get a job or claim your child as a dependent on a phony return.

Beware of phishing

Phishing involves people sending emails or other messages posing as a family member, friend, or legitimate company to attempt to steal information. Never click on links or open emails from anyone you don’t know.

Only go to a tax preparer you trust

Be sure only to get tax help from a legitimate tax preparer.

Regularly change your passwords

Changing your passwords often and ensuring you aren’t repeating them for multiple accounts helps to prevent identity thieves from gaining access to your personal information.

Respond to IRS notices

The IRS may send letters 4883C or 6330C asking you to verify your identity. Call the toll-free number provided in the letter to help keep your identity secure. Until the IRS hears from you, they won't be able to process your tax return, issue refunds, or credit any overpayments to your account.

Consult a financial professional

A financial professional can help you take the necessary steps to keep your information out of the hands of identity thieves and provide guidance for a more manageable and efficient tax filing.

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

Sources:

IRS provides tax inflation adjustments for tax year 2024 | Internal Revenue Service

What Does It Mean to Be Tax-Exempt or Have Tax-Exempt Income? (investopedia.com)

Electronic Filing (e-file) | Internal Revenue Service (irs.gov)

Credits & Deductions for Individuals | Internal Revenue Service (irs.gov)

Taxpayer guide to identity theft | Internal Revenue Service (irs.gov)

3 Ways Identity Thieves Steal Your Tax Refund and How to Prevent It - SC Office of the State Treasurer

A Comprehensive Guide to 2024 Tax Credits | SmartAsset

Who Qualifies for the Earned Income Tax Credit (EITC) | Internal Revenue Service (irs.gov)

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