Introduction

As we approach the 2024 tax season, many taxpayers are curious about what to expect regarding their tax refunds. With inflation-related adjustments to standard deductions and tax brackets for the 2023 tax year, you might be pleasantly surprised to find that your refund could be larger than expected. In this article, we’ll explore the reasons behind this potential increase and provide tips on how to prepare for tax season. And remember, for any mortgage service needs, O1ne Mortgage is here to help. Call us at 213-732-3074.

Why Would Your Refund Be Bigger in 2024?

Higher-than-usual inflation in 2023 has led to significant cost of living adjustments to tax brackets, standard deductions, and tax credits with income restrictions. These adjustments mean that if your income remained the same in 2023 as it was in 2022, your tax bill might be slightly lower. Here’s how:

Larger Standard Deductions

For 2023, standard deductions increased by an average of 7% compared to 2022. If you take the standard deduction instead of itemizing, you’ll have less taxable income in 2023. For example, if you’re a single taxpayer, your standard deduction increased from $12,950 in 2022 to $13,850 in 2023. Assuming your income, tax credits, and other adjustments stayed the same, your taxable income would be $900 less in 2023 than it was in 2022.

Tax Bracket Adjustments

Tax brackets have also changed. For instance, if you’re single with an income of $110,000, after subtracting the standard deductions for each year, your taxable income would be $97,050 in 2022 and $96,150 in 2023. This adjustment could save you roughly $447 on your federal taxes.

Changes to Tax Credits and Deductions

Although 2023 didn’t see many sweeping changes, there are a few timely developments to keep in mind:

Student Loan Interest Deduction

After a three-year pause, student loan interest charges resumed in September 2023. If you paid student loan interest last year, you might be eligible for up to a $2,500 reduction to your taxable income.

Earned Income Tax Credit Adjustments

Income limits for the earned income tax credit have been adjusted upward for 2023. For example, a married couple with three children qualifies with an adjusted gross income of $63,398, versus $59,187 in 2022. Credit amounts are up as well, with a maximum credit of $7,430 for families with three or more qualifying children.

Other Reasons Your Refund May Be Larger or Smaller

Any changes to your income and withholding can affect the size of your return. Here are some factors that may impact this year’s tax refund:

• You changed jobs or got a raise: Changes in income can affect your tax bracket and eligibility for certain tax credits.
• You changed your filing status: Changes such as getting married, becoming single, or having a child can affect your standard deduction and tax liability.
• You changed your withholdings: Adjustments in the amount of tax withheld from your paychecks directly impact your refund.
• You had a business or side gig: Income from self-employment or side gigs is taxable and can affect your tax bill.
• You sold investments: Capital gains from selling investments are taxable and can influence your refund.
• You changed your retirement contributions: Adjustments to your 401(k) or IRA contributions can affect your taxable income.

How to Prepare for Tax Season

Preparation is key to ensuring a smooth tax season. Here are four basic steps to help you get ready and file:

1. Get Your Records in Order

Collect all necessary documents, such as W-2 forms, 1099 forms, and receipts for deductible expenses. Keep any correspondence from the IRS or your state taxing authority.

2. Meet With a Tax Advisor

Consider working with a tax professional, especially if you own a business, itemize deductions, or have investments. Professional guidance can make a significant difference.

3. Get Online Help at IRS.gov

The IRS website offers a wealth of information and interactive tools for taxpayers. You can set up an online account, use Free File, get an identity protection PIN, and find answers to common tax questions.

4. Track Your Refund

Once your taxes are filed, use the IRS “Where’s My Refund?” tool to track your refund status. This tool provides updates 24 hours after e-filing a current-year return, three to four days after e-filing a prior-year return, or four weeks after filing a paper return.

The Bottom Line

The only way to know for sure whether this year’s refund will be bigger or smaller is to complete your tax return. The fastest and safest way to receive your tax refund is through IRS direct deposit to a bank account. If you don’t have a checking account, consider the Experian Smart Money™ Digital Checking Account & Debit Card, which can help you build credit without debt by linking to Experian Boost®.

Start the process now to put the 2023 tax year in the books and get your refund as soon as possible. And for any mortgage service needs, don’t hesitate to contact O1ne Mortgage at 213-732-3074. We’re here to help you navigate your financial journey with ease.