2024 Tax Prep: What to Know

Engage with the West Michigan Woman Community!

A new year means a new tax season is right around the bend. Are you prepared? To learn what folks should know and be focusing on right now to ready themselves, we connected with Rebecca Postma, CPA, MST, of Beene Garter, A Doeren Mayhew Firm.

First, Postma emphasizes the importance of gathering and organizing your tax documents now.

"Before year's end, start gathering tax documents you'll receive from your employer, bank, brokerage firm and others," Postma said, noting you should receive this information (some of which may be delivered electronically) by the end of January. "Throughout the year, you should also be gathering receipts for deductions, such as donations, medical costs and property taxes, if you plan to itemize."

You should also max out your retirement account contributions.

"Some of the best investments may be tax-deferred retirement accounts, since they compound over time free of taxes," Postma said. "Company-sponsored retirement plans may be the best, because employers often match some contributions. Try to contribute the maximum amount allowed for your specific plan."

Postma says you should also harvest your investment losses to offset your gains (while avoiding the IRS "wash sale" rule) and consider "bunching" your itemized deductions.

"Bunching generally means paying two years' worth of deductions in a given calendar year," Postma explained. "This increases your deductions in one tax year, making it advantageous to itemize. When your itemized deductions are lower in the next year, you take the standard deduction. By bunching your itemized deductions over alternating years, you can get the maximum benefit on your returns."

It's also important to check your IRA distributions.

"You must start making required minimum distributions from your traditional IRA accounts when you reach age 72 (73 if you reach age 72 after December 31, 2022)," Postma said, noting that though this rule was suspended for 2020, it's once again required. "Failing to meet this requirement triggers some very high IRS penalties."

While tax rates didn't change for 2023, Postma notes that income tax brackets are much wider than they were for 2022 due to inflation. Postma also adds that businesses and self-employed taxpayers should be aware that the first-year bonus depreciation has begun to phase-out in 2023. There are also some credits to be mindful of, should they be applicable to your individual situation.

Residential Clean Energy Credit: "This credit applies if you install an alternative energy system in your home that relies on a renewable energy source, such as solar, wind, geothermal or fuel cell technology," Postma said, adding the credit is 30% of the equipment and installation cost. "Beginning in 2023, the credit also applies to battery storage technology with a capacity of at least three kilowatt hours."

Energy-Efficient Home Improvement Credit: "This credit applies if you install energy-efficient improvements in your home, such as windows, doors, heaters and air-conditioners," Postma said. "Many changes have been made to the credit starting with 2023 and going through 2032; most notably, the $500 lifetime limit was increased to a $1,200 annual limit."

Clean Vehicle Credit: "The tax credit for buying an electric vehicle was significantly changed by the Inflation Reduction Act," Postma explained, noting that while the maximum credit remains at $7,500, final assembly of the EV must happen in North America.

Postma also recommends notifying your tax professional (or hiring one for the first time) if you've had a major life event in 2023 so nothing gets missed (think: new job, marriage, divorce, birth of a child, etc.).

Benefits to working with a tax professional abound, from saving you time and money by finding deductions or tax credits you may miss on your own to helping you plan for the future.

"A tax professional can often provide you with strategies to lower your overall tax burden," Postma said. "They keep up to date on the constant changes to the tax code each year, and can ensure you're taking advantage of all deductions and credits available to you. Along with preparing your tax returns, they can help you develop a plan to lower your future tax obligations."

Tackling your taxes on your own? Double and triple check basic details such as names and social security numbers (one of the most common errors seen by the IRS, according to Postma), and keep your documents organized in case of an audit. Postma also recommends opting for direct deposit, which should allow faster delivery of any potential refunds.

Written by Sarah Suydam, Managing Editor for West Michigan Woman.

This article originally appeared in the Dec '23/Jan '24 issue of West Michigan Woman.


More stories you'll love