Tax season is fast approaching, presenting both challenges and opportunities for individuals to streamline their financial planning. In an exclusive conversation, Matt Eilers, the founder and CEO of Medalist Wealth Management in Grand Rapids, Michigan, provided valuable insights into the upcoming tax changes and strategies for maximizing savings. This year brings significant updates, particularly concerning digital transactions and standard deductions. Eilers also emphasized the importance of leveraging retirement accounts and building emergency funds. By staying informed about these changes, taxpayers can better prepare for a smoother and more financially beneficial tax season.
The landscape of tax reporting has seen notable adjustments this year. One of the most impactful changes affects those who earn income through online platforms such as PayPal, Venmo, or eBay. Previously, the threshold for receiving a 1099 form was set at $20,000; however, this limit has now been reduced to $5,000. Individuals who have received at least five thousand dollars in transactions should anticipate receiving 1099 forms. Moreover, this threshold will further decrease to $2,500 by 2025, underscoring the need for meticulous record-keeping. Eilers advised taxpayers to be vigilant about tracking their digital transactions to ensure compliance with the new regulations.
In addition to the changes in 1099 thresholds, there are updates to standard deductions and tax brackets. For families, the standard deduction for 2024 is set at $14,600, with an increase to $15,000 expected in 2025. The tax brackets themselves will also experience slight adjustments due to a nearly five percent cost-of-living adjustment. Although tax rates will remain unchanged, the income levels within each bracket will shift slightly. Eilers clarified that while the percentages stay the same, the ranges of income subject to specific tax rates will vary. This adjustment provides an opportunity for taxpayers to reassess their financial planning and potentially reduce their tax liability.
Eilers also highlighted several tax credits available to families, including the earned income tax credit and the child tax credit, which remains at $2,000 per child. Families can take advantage of these credits to enhance their overall tax savings. Furthermore, Eilers stressed the importance of utilizing retirement savings accounts such as IRAs, 401(k)s, and Roth accounts. Contributions to these accounts can provide immediate tax benefits, such as reducing taxable income, or offer long-term advantages like tax-free growth. By strategically allocating funds across different types of retirement accounts, taxpayers can optimize their tax diversification and plan for a more secure financial future.
Beyond tax-specific strategies, Eilers urged individuals to focus on their broader financial health. He recommended paying off debt as a priority, followed by saving at least 15% of income for retirement. Compound interest, employer matches, and potential account growth can significantly boost retirement savings over time. Additionally, building an emergency fund with three to six months' worth of living expenses is crucial for financial stability. By combining these practices with smart tax planning, individuals can create a comprehensive strategy that supports both short-term needs and long-term goals.
As the tax season approaches, staying informed about the latest changes and adopting proactive financial strategies can lead to substantial savings and improved financial well-being. With careful planning and the guidance of professionals, taxpayers can navigate the complexities of the tax system and position themselves for a more prosperous future.