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  • Writer's pictureDevin Starr

Don’t Overlook 3 Key Tax Changes for 2024

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Key Takeaways

  • There is still time for many taxpayers to contribute to an IRA for 2023.

  • Good news. Income and contribution limits have been raised on IRA, 401(k) and 403(b) plans.

  • If you have been selling or receiving money from PayPal, Venmo, or any other third-party payment network you may receive a 1099-K form. Make sure you know what to do with it.

 

Now that you and your CPA are deep into tax season, I wanted to bring three important tax updates to your attention while there’s still time, specifically there are three key tax changes for 2024.

 

IRA Limits Increased

For tax year 2023, you can contribute up to $7,500 a year into your Roth or Traditional IRA ($6,500 if under age 50). Even better, you have until April 15, 2024, to make contributions for tax year 2023 if you haven’t reached your contribution limit yet. Contribution limits for 2024 will be raised to $8,000 ($7,000 if under age 50).


A Roth IRA can be an excellent way for you to save for retirement because you are using after-tax dollars. That means your money grows tax-free during your working years and you can withdraw it tax-free in retirement (or any time after age 59-1/2). Further, there are no required minimum withdrawals.


Business concept meaning IRA Roth Income Limits with phrase on the piece of paper.

Just remember there are income limits for contributing to a Roth:

  • If you are Single or Married Filing Separately, you cannot have a modified adjusted gross income (MAGI) exceeding $138,000 for the tax year 2023 ($146,000 in 2024).

  • If you are Married Filing Jointly, you cannot have a modified adjusted gross income (MAGI) exceeding $218,000 for tax year 2023 ($230,000 in 2024).


If you exceed these limits, you may have other options to contribute to a Roth by utilizing a technique called a "Backdoor Roth IRA contribution". The Backdoor Roth IRA allows you to make Roth IRA contributions even if you are above the income limit by making a non-deductible Traditional IRA contribution then converting it to your Roth IRA. This requires an empty traditional IRA; otherwise, a portion of your tax-deferred balance would become taxable due to the Pro-Rata rule.


The use of a Traditional IRA is also a possibility. It is a good idea to evaluate the tax benefits of a Traditional IRA and Roth IRA to determine which savings vehicle is best for you. The traditional IRA provides a tax benefit today by reducing your income, but requires you to pay income tax on the contribution and growth upon withdrawal. Holding a balance in your traditional IRA could also prevent you from doing a Backdoor Roth due to the Pro-Rate rule.


The income limits for making a fully deductible contribution to a Traditional IRA:

  • If you are Single or Married Filing Separately, you cannot have a modified adjusted gross income (MAGI) exceeding $73,000 for the tax year 2023 ($77,000 in 2024).

  • If you are Married Filing Jointly, you cannot have a modified adjusted gross income (MAGI) exceeding $123,000 for tax year 2023 ($240,000 in 2024).

Interested in making a Roth IRA contribution for 2023? After creating a draft of your 2023 tax return, we can help you verify your eligibility based on income and help facilitate your Roth contribution.


Employer-Sponsored Retirement Plan Contribution Limits Raised

For tax year 2024, you can contribute up to $30,500 to your 401(k) or 403(b) plans ($23,000 if under age 50). This is a $500 increase from 2023’s contribution limit. I encourage those of you who were previously maxing out your retirement plan throughout the year to boost your paycheck contributions to reach the new amount for 2024.  

 

Form 1099-K (Reporting Income Received From PayPal, Venmo, And Online Marketplaces) 

A 1099-K is a transaction record from third-party payment networks such as PayPal or Venmo. The reason I bring up Form 1099-K is because the IRS had planned to lower the reporting threshold dramatically to $600 in 2023. This would have impacted millions of hobbyists and occasional users including some of you. However, the IRS delayed and revised the decision in November. The reporting threshold will remain at $20,000 for tax year 2023 and will be lowered to $5,000 in 2024. Eventually, the threshold will be lowered to $600 so you’ll want to keep an eye on your 1099-Ks.


Consumer paying for product at vending machine using contactless method of payment with mobile phone. Woman using payment app on smartphone to buy produc

Many people who casually sold personal items like clothing, furniture, and other household objects for less than they paid for those items could have received 1099-Ks if the threshold had been $600—even though selling items at a loss isn't considered taxable income. It is crucial to keep track of receipts for any purchases that you may later resell to establish your cost basis for the item. Re-selling an item for less than you originally paid is not considered taxable income, as long as you can provide proof of the initial cost for the item. 

 

Bottom line: Be on the lookout for any 1099-K’s that might be sent to you for 2023. Although the threshold is more than $20,000 and 200 transactions for the tax year 2023, anyone who uses payment apps or online marketplaces to get payments for selling goods or providing services—i.e. those with side hustles, crafters, small businesses, and gig workers—could still receive a 1099-K for any amount. In addition, whether or not a payment network sends you a 1099-K, all income is taxable and needs to be reported on your tax return unless it's excluded by law. Here’s more about understanding Form 1099-K from the IRS.

 

If you or someone close to you has questions about tax forms, income limits, and contribution limits for retirement plans, reach out any time. We are happy to assist. 

 

DEVIN STARR, CFP® is an Associate Wealth Advisor at Novi Wealth Partners

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