IRS Issued Key Updates This Week: What You Need to Know to Save Money and Stay Compliant
The IRS dropped several important updates over the past week, and whether you’re a taxpayer, a business owner, or an employer, these announcements can directly impact your finances. From new guidance on retirement contributions linked to student loan payments to a reminder for schoolteachers on classroom expense deductions, these updates are packed with information you’ll want to know. Let’s dive into some of them.
1. Extension Filers: Watch Out When Choosing Your Tax Preparer
The IRS is reminding taxpayers with an extension that the deadline is October 15, 2024. That means you still have some time to file, but choosing the right tax preparer can make or break your tax return. This tax tip highlighted key things to watch out for when picking someone to handle your taxes.
Why is this important? Your tax preparer will have access to sensitive information, and any mistakes or bad advice could result in penalties, audits, or even criminal charges if they’re not careful.
Here are a few tips from the IRS:
- Ensure your preparer has a valid Preparer Tax Identification Number (PTIN).
- Avoid “ghost preparers” who refuse to sign your tax return.
- Be cautious of preparers who base their fee on the size of your refund.
This is your money and your future, so don’t just pick the first preparer you come across. Do your research and ensure your tax professional is both experienced and trustworthy.
2. Parents, Don’t Miss Out on the Child and Dependent Care Credit for Summer Camp Expenses
Working parents who paid for summer day camp might be eligible for some serious tax relief. The IRS confirmed that expenses for summer day camps qualify for the Child and Dependent Care Credit.
Here’s how it works:
- You can claim up to 35% of eligible expenses, depending on your income.
- Eligible expenses can be up to $3,000 for one child or $6,000 for two or more children.
- This credit applies even if you’re paying for care for a spouse or dependent who can’t care for themselves while you’re working.
The credit helps offset the cost of keeping your kids entertained while you’re at work. Summer camps aren’t cheap, so don’t miss out on claiming these expenses when you file your 2024 tax return.
3. Student Loans and Retirement Contributions Just Got Better: New IRS Guidance
Good news if you’re juggling student loan payments and trying to save for retirement — the IRS just made it easier. Under the new guidance, employers can now make retirement plan matching contributions based on your student loan payments. This is a huge win for employees drowning in debt while trying to build their retirement nest egg.
Here’s what you need to know:
- Employers can match your student loan payments with contributions to your 401(k) or similar retirement plans.
- These matching contributions will be treated just like regular contributions for tax purposes.
For employees, this means you don’t have to choose between paying off student debt and saving for retirement. If your employer offers this, take full advantage — it’s essentially free money for your future!
4. IRS Interest Rates Jump for Q4 2024
Heads up if you have any federal tax debts or overpayments — the IRS announced that interest rates will remain the same for the fourth quarter of 2024. Whether you owe taxes or are due a refund, these rates will directly impact how much you’ll pay or receive.
Here’s a complete list of the rates:
- 8% for overpayments (payments made in excess of the amount owed).
- 7% for corporate overpayments.
- 5% for the portion of a corporate overpayment exceeding $10,000.
- 8% for underpayments (taxes owed but not fully paid).
- 10% for large corporate underpayments.
These rates will kick in starting October 1, 2024, and apply through the end of the year. If you’ve got tax debt, now might be the time to pay it off before these interest rates make it more expensive to do so.
5. Schoolteachers: Don’t Forget to Deduct Your Classroom Expenses
Teachers, it’s back-to-school season, and the IRS has a friendly reminder for you: You can deduct up to $300 in out-of-pocket expenses for your classroom supplies. This deduction can include anything from books and markers to new tech and professional development courses.
Quick facts about this deduction:
- If both you and your spouse are eligible educators and file jointly, you can deduct up to $600.
- This deduction applies even if you don’t itemize — it’s an above-the-line deduction, so almost every educator can take advantage of it.
Considering how much teachers spend on their classrooms every year, this deduction is a small but valuable way to get a bit of relief. Be sure to hold onto your receipts for everything you buy to keep your classroom running smoothly.
Conclusion — Plan Ahead
These updates from the IRS underscore just how important it is to stay informed about tax changes and take advantage of available credits and deductions. Whether you’re a parent, an employee with student debt, or an educator, there are opportunities to save money and plan for the future.
Be proactive in your tax planning, and if these updates seem overwhelming, consider working with a trusted tax professional who can guide you through the latest IRS guidance.
From saving money on summer camps to ensuring you’re choosing the right tax preparer for your extension, there are plenty of ways to make the most of the recent IRS announcements. Take action now to maximize your tax benefits and stay compliant!
Frequently Asked Questions
- Can I claim both the Child and Dependent Care Credit and the Child Tax Credit for my children?
Yes, you can claim both credits, but they serve different purposes. The Child and Dependent Care Credit is for expenses related to caring for your child while you work, like summer camp costs or daycare. The Child Tax Credit, on the other hand, is a credit for simply having dependent children, regardless of whether or not you incur care expenses. Be sure to check if your expenses qualify for each credit and claim both if applicable.
- If my employer doesn’t offer retirement matching contributions for student loan payments, can I still benefit from the new IRS guidance?
Unfortunately, the new guidance applies only if your employer opts to offer matching contributions tied to your student loan payments. If your employer doesn’t provide this benefit, you won’t be able to take advantage of it. It may be worth speaking to your HR department to see if they’re aware of this new option and are considering implementing it.
- Do I need to itemize deductions to claim the $300 classroom expense deduction as a teacher?
No, you don’t need to itemize deductions to claim the classroom expense deduction. It’s an above-the-line deduction, which means you can claim it even if you take the standard deduction. Just keep your receipts for any eligible expenses so you can back up your claim when filing your taxes.
