2024 Tax Season: 11 Common Questions Answered

By Eric Rosenberg

PUBLISHED March 09
|
11 MINUTE READ

Tax filing season has a way of sneaking up on us—it's always just around the corner. While it may feel like you have a long time to prepare, there's no better time than the present to brush up on your tax knowledge to help ensure you maximize your credits and deductions to save as much as possible on your annual tax bill.

Review this tax season FAQ to level up your tax skills and prepare for a successful tax filing season.

1. How Can I Prepare for Tax Day 2024?

Income taxes for 2023 are due in April 2024. The best steps to get ready include gathering your tax documents, brushing up on tax updates relevant to you and picking your tax filing method for 2024.

• Gather tax documents. Tax documents often show up in your physical mailbox or require a quick download from your financial institutions. Most of us have a combination of the two. Consider keeping a paper file to store all your W-2s, 1099s and other forms that show up in your mailbox, and a folder on your computer's desktop or in your downloads folder to gather PDFs of digital tax forms as they become available.
• Review tax changes for 2024. For 2024, the biggest tax changes most people will encounter relate to limits for deductions and credits. With COVID-era programs essentially over, taxes are getting back to normal for most households.
• Choose your filing method. Deciding between a trusted tax professional or do-it-yourself tax software is a personal decision. If you're comfortable with computers and entering information from your tax forms, software is often the cheapest method to file your taxes. If you have complex taxes, such as complicated investments or self-employment, or you're not confident in doing your taxes yourself, there's no harm in hiring a tax professional.

2. What's the Difference Between Tax Deductions and Tax Credits?

Tax deductions and credits can lower your tax bill, but each works differently. One lowers your taxable income, while the other lowers your taxes due directly.

• A tax deduction lowers the amount of your income that's taxable. Say, for example, you earn $50,000 before any federal tax deductions and you contribute $5,000 to your workplace 401(k). The $5,000 is deducted from your taxable income, so you owe taxes as if you earned $45,000, not $50,000.
• A tax credit directly changes the amount of tax you owe. If your total taxes owed for the year are $5,000 and you qualify for a $1,000 credit, your tax bill is lowered to $4,000. Because of how they work, credits can be considered more valuable than deductions when comparing them dollar for dollar.
• Nonrefundable credits can only reduce how much you owe and won't generate a refund. Refundable credits can lower your tax bill to below zero, so the IRS owes you more when filing your taxes.

LEARN MORE: Personal Finance 201: Tax Credits vs. Tax Deductions

3. How Do Student Loan Repayments Impact Taxes?

After a significant pause, student loan repayments have resumed for many Americans. Student loan interest is tax-deductible, lowering your taxable income and total tax bill.

Check with your student loan servicer for form 1098-E, which includes your total tax-deductible interest payments for the year. Note that your total payments are not necessarily deductible. Only interest on student loans is eligible to lower your taxes.

4. What Are Tax-advantaged Savings Accounts?

Tax-advantaged savings accounts can help you save for the future and on your yearly income taxes at the same time. Looking for a way to reduce your 2023 tax bill? Contribute to a traditional IRA before tax day in April 2024, and you could deduct your contribution from your 2023 taxable income.

For retirement savings and investments, the most common types of accounts include traditional IRA, Roth IRA, 401(k), 403(b), 457, SEP IRA and SIMPLE IRA accounts. The tax benefits work differently with each account, so it's best to consult with a tax advisor if you're not sure what makes the most sense for your unique financial situation.

LEARN MORE: Getting to Know Tax-Advantaged Savings Accounts

5. How Does Investing Money Affect My Taxes?

If 2023 was the year you began investing your money, you made a smart move. Putting money away for your financial future is an excellent decision regardless of the timing, but 2023 happened to be a good year for the financial markets.

Now, you can make an even smarter move by learning how investing affects your taxes. If you haven't sold any of your investments yet, dividends will likely be your first experience with investment-related taxes, and capital gains and losses will come later in your investing journey.

If you did sell stocks or bonds or other investments this year, you will most likely owe taxes on any profits, or you may be able to write off any losses. But the amount you owe will depend on whether you owned the stocks for more or less than a year. Your accountant or tax software takes care of the calculations based on the data you provide.

LEARN MORE: How Investing Money Affects Your Taxes

6. What Tax Deductions Am I Missing?

2017 tax law changes led many people who had previously itemized their tax deductions to opt for the increased standard deduction instead. If you still itemize your taxes or need to decide whether you should, the infographic at the link below is for you. Use the examples of charitable contributions and medical, moving or business expenses that others have successfully deducted to figure out which receipts and documentation to collect.

LEARN MORE: Tax Deductions That May Surprise You

7. Can I Pay Less on My Property Taxes?

Most people pay close attention to saving money on their income taxes but don't realize they could reduce their property tax bill. If you're a military veteran or a senior, you may be eligible for property tax credits. Or your property may be overvalued—and if it is, you can appeal to your state or local government to have it reassessed and potentially save money.

Learn more in the podcast below. (As a bonus, you can also find out whether it's ever a good idea to lend money to a family member, and how to maximize your Social Security benefits.)

LEARN MORE: Podcast: Property Taxes, Lending Money to Family, Social Security

8. How Can I Avoid Owing Taxes?

A large, unexpected tax bill is never fun, but it can also be a learning experience. If you end up owing a lot on your taxes, and you expect the main factors that affect your taxes to remain the same as last year, consider taking a few simple steps to avoid another stressful surprise.

Adjust your withholding through your employer, or increase contributions to a traditional 401(k) or traditional IRA. Look into which deductions and credits you qualify for, some of which we've described above.

LEARN MORE: Owe Taxes This Year? Here's How to Plan Better for Next Year

9. What Should I Do With My Tax Refund?

If you get a large refund, you may be tempted to splurge. Before you do, think about this: The government has been using your money interest-free. Put your money to work for you instead by depositing your refund into a Roth IRA or paying down high interest debt.

After you do that, adjust your withholding so you stop lending Uncle Sam your hard-earned cash. Then, put the extra take-home pay into a high yield savings account or money market account. Or set up an automatic monthly contribution to your Roth IRA. One day, you'll take a look at your savings balance and thank yourself for making excellent use of your money.

LEARN MORE: Getting a Tax Refund? Pay Your Future Self a Bonus

10. What Tax Moves Should I Make Before Year-end?

Did you contribute to a flexible spending account (FSA) last year? If so, now is the time to do two things:

• Check the deadline for spending your funds. Some employers require you to spend your money by December 31, while others give you a grace period, allowing you to spend last year's FSA funds in the first few months of the new year. Still others allow you to roll over a portion of unused FSA funds to the following year.

• Gather receipts. Many medical expenses are eligible for FSA reimbursement, including over-the-counter medications and menstrual care products. Don't forget receipts for doctor copays and prescriptions, which remain FSA-eligible. The following article includes useful tips you can use this year to plan ahead for tax time.

LEARN MORE: 5 Tax Moves to Make Before Year-End

11. How Are Taxes Different If I'm a Gig Worker?

If you're self-employed or have a side hustle, you may be wondering which business expenses you can and can't deduct. For example, do you have a home office? Have you bought a new laptop or software for your business? If so, how much of the cost can you deduct? The sooner you know the answers to these questions, the sooner you can organize your records—and the easier filing your taxes will be.

LEARN MORE: Taxes: They're Different With a Gig

Prepare for Taxes All Year

While there is no way to avoid taxes, there are many ways to legally reduce your tax burden. Federal and state tax codes can be complicated, but a tax specialist or accountant might provide you with money-saving tips or strategies beyond what we've discussed here. Or, if you select high-quality tax software, you can find many of the most important deductions and credits on your own. Either way, understanding your taxes is essential when looking to lower your annual income tax bill.

Eric Rosenberg is a financial writer, speaker and consultant based in Ventura, California. He is an expert in banking, credit cards, investing, cryptocurrency, insurance, real estate, business finance and financial fraud and security. His work has appeared in many online publications, including Time, USA Today, Forbes, Business Insider, NerdWallet, Investopedia and U.S. News & World Report. Connect with him and learn more at EricRosenberg.com.

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