Tax News for Individuals
The IRS increased interest rates for underpayments:
The IRS increased interest rates for underpayments of estimated tax to 8% per year, starting with payments due in the 4th quarter or 2023 and into 2024.
Standard Deduction Increase and Exemptions Eliminated:
Standard Deductions is $29,200 (MFJ), $14,600 (S & MFS), and $21,900 (HOH) for 2024.
Marriage Penalty:
The federal marriage penalty has been eliminated through the 32% tax bracket. That means that the tax rate % threshold for MJF is double what the Single threshold is through the 32% tax bracket.
Gifting:
You can gift up to $18,000 per person and not have to file a gift tax return. This amount is unchanged from the previous year.
Exemption:
Exemptions have been eliminated for 2018 thru 2025. However, dependent exemptions are still showed on your Minnesota return.
State and local sales tax deduction:
The state and local sales tax AND property tax deduction is limited to $10,000 beginning in 2018 through 2025.
Miscellaneous Itemized Deductions:
Miscellaneous Itemized Deductions (2% category) on Federal Tax Return has been eliminated: Unreimbursed job expenses and other expenses in this category are no longer deductible from 2018 thru 2025. This includes union dues, job search expenses, uniforms/work clothes, job licenses, tools & supplies.
Mortgage Interest:
For it to be deductible, mortgage interest is only deductible if it's for the acquisition or improvement of that house. For new loans you can deduct interest for financing of up to $750,000.
Casualty Loss deduction has been eliminated:
Casualty losses are no longer deductible from 2018 thru 2025 unless it is in a federally declared disaster area.
Minnesota Changes to the Tax Code:
Minnesota has mostly conformed to the Federal tax law changes. One of the items Minnesota did not change is that an employee can still deduct unreimbursed work expenses. Due to the increased standard deduction, this might not apply.
Deduction for Teachers:
The Teachers Classroom Expense Deduction of $300 allows teachers to deduct supplies they bought for their classrooms.
Changes to Tax Credits
For Taxpayers with Children:
The child tax credit was increased to $2,000. The refundable portion is up to $1,700 for each child. The phase-out for this credit was increased to $400,000 (MFJ) and $200,000 (S, HOH, MFS) of Modified AGI.
Family Tax Credit:
For taxpayers with dependents who don't qualify for child tax credit there is a new Family Tax Credit of up to $500. The phase-out for this credit begins at $400,000 (MFJ) and $200,000 (for S, HOH, MFS) of Modified AGI. This credit is not refundable. The child can be 19 - 23 years old.
Education:
Higher tuition tax credit: The enhanced American Opportunity Tax Credit of $2,500 is in place for qualified education expenses.
Tax Tips - Commonly Missed Items on Tax Returns
Non-Cash Donations:
Since many organizations only give blank receipts when donations are dropped off, make a list of items before you donate them and attach the receipt to it.
Minnesota Charitable Donation Deduction:
Even if you don't itemize on your federal return, MN allows you a deduction for charitable contributions > $500.
Minnesota K-12 Education Expenses:
Minnesota allows a subtraction of up to $1,625 per child for K-6 school expenses and $2,500 per child for grades 7-12.
College Savings Plan:
Minnesota allows up to a $3,000 deduction per family if you contribute to a 529 college savings plan. Someone other than the parent can take advantage of this deduction as well.
Property Tax Deduction:
If you received a property tax refund for the prior year, be sure to subtract this from your current year property tax deduction.