With the 2024 tax season officially kicking off on January 29, taxpayers can anticipate significant changes as the Internal Revenue Service (IRS) undergoes a massive overhaul to improve technology, customer service, and overall efficiency. Between more filing centers offering in-person tax help and a new e-file pilot program, taxpayers now have more opportunities to utilize enhanced service. Understanding the ins and outs of these changes is the first step toward maximizing your refund potential this tax season.
What changes are happening
The IRS transformation is fueled by the allocation of tens of billions of dollars through the Inflation Reduction Act, which was signed into law in August 2022. In a press release, IRS Commissioner Danny Werfel expressed optimism about the upcoming filing season, stating, “As our transformation efforts take hold, taxpayers will continue to see marked improvement in IRS operations.”
The substantial funding injection is intended to make the process of preparing and filing taxes easier for taxpayers. Here are some of the new and expanded tools and resources taxpayers can expect:
- Expanded in-person service: Taxpayer Assistance Centers (TACs) will be opened or reopened, providing increased in-person service with extended hours at many TACs nationwide.
- Assistance by phone: The IRS will enhance its toll-free line, introducing an expanded customer call-back feature to significantly reduce wait times.
- Online tool improvements: The widely used Where’s My Refund? tool receives updates for clearer and more detailed status messages in plain language. These updates aim to reduce the need for taxpayers to call the IRS for basic questions.
- Paperless processing: An enhanced paperless processing system allows taxpayers to submit all correspondence, non-tax forms, and responses to notices digitally. Additionally, taxpayers can now e-File 20 additional tax forms.
- Enhanced IRS individual online account: The IRS Individual Online Account gets an upgrade with chat functionality, the ability to schedule and cancel future payments, revise payment plans, and validate and save bank accounts.
As you gear up for the tax season, it’s crucial to navigate these IRS changes strategically to maximize refund results. To shed light on this, we interviewed tax experts to provide insights into the key aspects of the IRS overhaul and explain the best ways to approach this year’s tax prep.
1. Understand your filing options
A significant highlight of the IRS changes is the introduction of a new electronic Direct File pilot program. Eligible taxpayers will have the option to file their 2023 returns directly with the IRS online. The program is expected to roll out in phases and is anticipated to be widely available by mid-March.
While you don’t have to e-file — mailing paper tax returns is still acceptable — it’s quickly becoming the norm. According to Romeo Razi, a Certified Public Accountant (CPA), founder and operator of Taxed Right, “[The] IRS is trying to push more people and businesses to e-File. They actually just passed an initiative to make e-Filing of 1099s mandatory for anyone that needs to file 10 or more 1099s (it used to be 250).”
This year, the IRS is also set to open more walk-in centers to provide direct assistance to taxpayers. “Now that the IRS is opening more walk-in centers, it will be very helpful for people who still want human interaction when it comes to preparing their taxes. If you’re not very tech savvy, these walk-in centers will be perfect for you,” Razi says.
It’s important to note, however, that the help provided at IRS walk-in centers and through the expanded online platforms is limited. “This service provides taxpayers with the ability to file their taxes but does not help people to figure out deductions,” says Razi, who formerly worked at VITA, the IRS Volunteer Income Tax Assistance Program, where he says “they made sure to make sure you didn’t make any mistakes with your taxes.”
2. Determine whether or not you qualify to use Direct File
“Similar to current commercial tax software, it will navigate the taxpayer through questions to enter their information and data,” Kathy Alfaro, CEO and business and tax strategist at Alfa Tax Service tells Credello. However, there is a catch for taxpayers looking to use the program — not everyone can use it.
“The program is rolling out as a pilot so there will be limited deductions and credits,” Alfaro says. “It’s important to first determine if you are best fit to use Direct File program during its pilot release or at a future time.”
To qualify for the Direct File pilot program you must:
- Live in one of the participating pilot states: Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington state, Wyoming
- Report certain types of income, credits, and deductions on your 2023 federal tax return including: W-2 wage income, SSA-1099 Social Security and RRB -1099 railroad retirement income, 1099-G unemployment compensation, 1099- INT interest income of $1,500 or less, Earned Income Tax Credit, Child Tax Credit, Credit for Other Dependents, Standard deduction, Student loan interest, Educator expenses.
Some disqualifying elements for taxpayers include:
- Reporting certain types of income, including that from the gig economy or business income.
- Itemizing your deductions.
- Claiming certain credits, including the Child and Dependent Care Credit, Saver’s Credit or the Premium Tax Credit.
More information about Direct File requirements can be found on the IRS website.
3. Review the timing for filing and refunds
While the IRS officially starts accepting and processing tax returns on Jan. 29, taxpayers don’t have to wait until then to start working on their taxes. In fact, in some cases, the sooner you submit, the better.
Using software companies or tax professionals can give you a head start. Most tax software companies accept electronic submissions in advance and hold them until the IRS begins processing later in the month. IRS Free File is available on IRS.gov starting Jan. 12, providing early access to those eager to kickstart the filing season.
IRS tax filing deadlines are as follows:
- For most taxpayers: April 15, 2024
- Maine and Massachusetts residents: April 17, 2024 (due to holidays)
- Extension filers: Oct. 15, 2024
According to the IRS, most taxpayers can expect that refunds will be issued in less than 21 days, marking a significant improvement over previous years. “Refunds are issued on a schedule starting with the day the e-file is accepted,” Alfaro says.
Opt for electronic filing with direct deposit for the fastest and easiest way to file and receive a refund.
4. Learn what’s changed for 2023 tax filing
For the 2023 tax year, income tax rates have been adjusted for inflation. The IRS website details these adjustments — more than 60 provisions in total — and breaks down rate changes for standard deductions by filing type and income level.
Rates for capital gains tax have also been adjusted for the 2023 tax year. According to the IRS, “Net capital gains are taxed at different rates depending on overall taxable income, although some or all net capital gain may be taxed at 0%. For taxable years beginning in 2023, the tax rate on most net capital gain is no higher than 15% for most individuals.” You can see a detailed list of capital gains tax adjustments on the IRS website to learn more.
Deductions and credits have also been adjusted, according to Alfaro, though these do vary based on individual circumstances. To find which standard deductions apply to your specific situation, take a look at the standard deductions table on the IRS website.
Below are some of the key changes to stay aware of this filing season, according to Alfaro:
- Elementary and secondary school teachers are allowed a deduction of $300 for expenses (books, supplies).
- Foreign Income Exclusion is $120,000.
- Annual Gift Exclusion is $17,000 to any person.
- The HSA Annual Contribution Limitation is $3,850 for self-coverage or $7,750 for family coverage.
- Standard Mileage Rates are 65.5 cents for business use, 22 cents for medical or moving purposes, and 14 cents for charitable organizations.
- Adoption Credit increased to $15,950.
- Energy credits for energy-efficient home improvements may qualify for up to $3,200 in credits.
“Also, keep an eye out for the child tax credit,” says Razi. “Currently it’s $1,600, but Congress is trying to increase it to $1,800 before tax filing starts in a few weeks.”
5. Look for ways to maximize this year’s refund
Above and beyond educating yourself on the changes happening this year, there are a number of strategies to employ that can help you make the most of your 2023 tax filing and potentially boost your refund amount.
Here’s what experts suggest to ensure a smooth filing experience:
Take advantage of Tax Credits: Identify and claim all eligible tax credits. This may include the Earned Income Tax Credit (EITC), Child Tax Credit, and other credits for education, energy-efficient improvements, or childcare expenses.
Deductible expenses: Itemize deductions to maximize your tax savings. Deductible expenses may include mortgage interest, medical expenses, state and local taxes, and charitable contributions. Be sure to keep accurate records to support your deductions.
Contribute to retirement accounts: Contribute to tax-advantaged retirement accounts, such as a 401(k) or an IRA. Contributions to these accounts can reduce your taxable income, potentially increasing your refund. Check contribution limits and deadlines for the tax year.
Utilize above-the-line deductions: Take advantage of above-the-line deductions, which can be claimed without itemizing. These deductions include student loan interest, educator expenses, and contributions to Health Savings Accounts (HSAs) or Individual Retirement Accounts (IRAs).
Review and update your withholding: Regularly review and update your withholding to ensure it aligns with your actual tax liability. Adjust your W-4 form with your employer to avoid overpaying taxes throughout the year, leading to a larger refund at tax time.
If you do get a larger tax refund this year, one smart way to use those funds is to pay off existing debt. With Credello’s debt payoff calculator, you can add an additional payment (like your tax refund amount) to what you’re currently paying monthly payments to see how applying the snowball or avalanche method to pay off that debt could help you save on interest and become debt free faster.
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6. Ensure your filing is error-free
Completing your tax return without any mistakes is one way to make sure you get your refund as quickly as possible. According to Alfaro, “Strategies help ensure the refund is not slowed is to make sure ALL taxpayer income has been entered, healthcare marketplace credits have been entered.”
Organization is key here. To prepare your return, gather necessary tax records, including Social Security numbers, Individual Taxpayer Identification Numbers, Identity Protection Personal Identification Numbers, and all income-related documents, especially Forms 1099 for various income sources.
7. Seek help from a tax professional
Seeking help from a tax professional when filing taxes can ensure accurate and thorough completion of complex tax forms, minimizing the risk of errors or omissions. A tax professional can also provide valuable insights into available deductions and credits, which can maximize your refund or reduce your tax liability.
Navigating tax laws, especially as the IRS continues to make changes, can be an intricate and complicated process, and a tax professional can offer personalized advice tailored to your unique financial circumstances.
As you prepare for the upcoming filing season, the IRS changes and expanded resources are designed to simplify the process and could potentially lead to maximized results. By paying attention to these expert insights on navigating the IRS changes, you can ensure a successful and efficient tax season in 2024.