USA Taxation 2024: Updated Guidelines for Individuals

Summary: The IRS has opened tax filing for the 2024 tax year, with the deadline set for April 15, 2025. Late filing may incur penalties, but an automatic six-month extension can be requested via Form 4868. Taxpayers abroad or on active military duty receive an additional two months to file but must still pay taxes due by April 15. Filing requirements vary based on income and status, with details on thresholds for singles, married couples, heads of households, and more. Standard deductions for 2024 have increased: $29,200 for married couples filing jointly, $14,600 for singles, and $21,900 for heads of households. Marginal tax rates range from 10% to 37%, depending on income. Gross income includes worldwide income, and specific rules apply for Social Security benefits, foreign income, and capital gains. Taxpayers with foreign assets or accounts may need to file additional forms, such as Form 8938 or Schedule B. To prepare, gather essential documents like W-2s, interest statements, and proof of deductions or credits. The IRS emphasizes accuracy in Social Security Numbers and filing status to avoid issues. Learn more about foreign income exclusions, retirement plans, and other key updates for 2024 on the IRS website.

The date for filing of income tax returns for the tax year 2024 has already been enabled by Internal Revenue Service, US government. Let us look at the latest instructions with detailed notes on tax rates, forms, revision of tax returns etc. IRS website has been extensively used for understanding the instructions.

The last date for filing of tax returns 1040 or 1040-SR is April 15, 2025. If you file after this date, you may have to pay interest and penalties. You can get an automatic 6-month extension if, no later than the date your return is due, you file Form 4868 electronically. You get two more months to file the tax return if you work outside USA or serve in military or naval service on duty outside the country. However, this does not mean that you get two more months to unpaid tax since interest will be charged on unpaid tax from the original due- date of the tax return and in the current case, April, 15, 2025.

Who will file the tax returns?

The following chart explains.

What does a gross income mean?

Gross income means all income one received in the form of money, goods, property, and services that are not exempt from tax, including any income from sources outside the United States or from the sale of one’s main home (even if one can exclude part or all of it). Social security benefits are included if one files the tax return separately but lived with his wife at any time in 2024. Or, one-half of one’s social security benefits plus one’s other gross income and any tax-exempt interest is more than $25,000 ($32,000 if married filing jointly).

Can we learn some information on Schedule D, Schedule C etc?

Gross income includes gains, but not losses, reported on Form 8949 or Schedule D.

Gross income from a business means, for example, the amount on Schedule C, line 7, or Schedule F, line 9. But, in figuring gross income, one doesn’t reduce the income by any losses, including any loss on Schedule C, line 7, or Schedule F, line 9.

If one didn’t live with the spouse at the end of 2024 (or on the date the spouse died) and one’s gross income was at least $5, the tax return must be filed irrespective of the age of the tax payer.

What are the standard deductions, and the marginal tax rates for the tax payers?

For tax season 2024, the following details have been culled out from IRS website.

The tax year 2024 adjustments described below generally apply to income tax returns filed in 2025. The tax items for tax year 2024 of greatest interest to most taxpayers include the following dollar amounts:

• The standard deduction for married couples filing jointly for tax year 2024 rises to $29,200, an increase of $1,500 from tax year 2023. For single taxpayers and married individuals filing separately, the standard deduction rises to $14,600 for 2024, an increase of $750 from 2023; and for heads of households, the standard deduction will be $21,900 for tax year 2024, an increase of $1,100 from the amount for tax year 2023.
• Marginal rates: For tax year 2024, the top tax rate remains 37% for individual single taxpayers with incomes greater than $609,350 ($731,200 for married couples filing jointly).

The other rates are:

35% for incomes over $243,725 ($487,450 for married couples filing jointly)
32% for incomes over $191,950 ($383,900 for married couples filing jointly)
24% for incomes over $100,525 ($201,050 for married couples filing jointly)
22% for incomes over $47,150 ($94,300 for married couples filing jointly)
12% for incomes over $11,600 ($23,200 for married couples filing jointly)

The lowest rate is 10% for incomes of single individuals with incomes of $11,600 or less ($23,200 for married couples filing jointly).

• The Alternative Minimum Tax exemption amount for tax year 2024 is $85,700 and begins to phase out at $609,350 ($133,300 for married couples filing jointly for whom the exemption begins to phase out at $1,218,700). For comparison, the 2023 exemption amount was $81,300 and began to phase out at $578,150 ($126,500 for married couples filing jointly for whom the exemption began to phase out at $1,156,300).
• The tax year 2024 maximum Earned Income Tax Credit amount is $7,830 for qualifying taxpayers who have three or more qualifying children, an increase  from $7,430 for tax year 2023. The revenue procedure contains a table providing maximum EITC amount for other categories, income thresholds and phase-outs.
• For tax year 2024, the monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking increases to $315, an increase of $15 from the limit for 2023.
• For the taxable years beginning in 2024, the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements increases to $3,200.
•  For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount is $640, an increase of $30 from taxable years beginning in 2023.

Social security number

An incorrect or missing SSN can increase your tax, reduce your refund, or delay your refund. To apply for an SSN, fill in Form SS-5 and return it, along with the appropriate evidence documents, to the Social Security Administration (SSA). You can get Form SS-5 online at SSA.gov/forms/ss-5.pdf, from your local SSA office, or by calling the SSA at 800-772-1213. It usually takes about 2 weeks to get an SSN once the SSA has all the evidence and information it needs.

Check that both the name and SSN on your Forms 1040 or 1040-SR, W-2, and 1099 agree with your social security card. If they don’t, certain deductions and credits on Form 1040 or 1040-SR may be reduced or disallowed and you may not receive credit for your social security earnings.

IRS Individual Taxpayer Identification Numbers (ITINs) for Aliens

If you are a non-resident or resident alien and you don’t have and aren’t eligible to get an SSN, you must apply for an ITIN. It takes about 7 weeks to get an ITIN.

If you already have an ITIN, enter it wherever your SSN is requested on your tax return.

Filing Status

Check only the filing status that applies to you. The ones that will usually give you the lowest tax are listed last.

• Married filing separately.
• Single.
• Head of household.
• Married filing jointly.
• Qualifying surviving spouse.

Detailed explanations for every one of them are given on pages related to 1040 instructions in IRS website.

Foreign-Source Income

You must report unearned income, such as interest, dividends, and pensions, from sources outside the United States unless exempt by law or a tax treaty. You must also report earned income, such as wages and tips, from sources outside the United States.

If you worked abroad, you may be able to exclude part or all of your foreign earned income. For details, one can refer Pub. 54 and Form 2555.

Foreign retirement plans.

If you were a beneficiary of a foreign retirement plan, you may have to report the undistributed income earned in your plan. However, if you were the beneficiary of a Canadian registered retirement plan, see Rev. Proc. 2014-55, 2014-44 I.R.B. 753, available at IRS.gov/irb/2014-44_IRB#RP-2014-55, to find out if you can elect to defer tax on the undistributed income.

Report distributions from foreign pension plans on lines 5a and 5b.

Foreign accounts and trusts.

You must complete Part III of Schedule B if you:

• Had a foreign account; or
• Received a distribution from, or were a grantor of, or a transferor to, a foreign trust.

You may also have to file Form 3520.

Foreign financial assets.

If you had foreign financial assets in 2024, you may have to file Form 8938. Kindly refer form 8938 and its instructions.

Now it is time to learn about form 1040 or 1040 – SR if you were born before January 2, 1960.

Please collect the following papers from the check list before approaching the CPA to file your tax return.

Check list for filing form 1040 or 1040 SR.

Proof of identification Status of your tax form and residency status

Social Security Numbers for you (plus your spouse and any other dependents)

Dates of birth for you (and your spouse, plus any other dependents)

A copy of your tax return Statements of wages earned (e.g., W-2, W-2G, 1099-INT, 1099-DIV, 1099-G)

Statements of interest/dividends from banks, brokerages, etc.

Proof of any tax credits, tax deductions or tax exclusions

Your bank account number and routing number (for Direct Deposit)

Capital gain details, if any.

Medical Expenses Paid

Dependent date of birth

Any childcare expenses

Capital gains tax

Capital gains and losses: In a simple tax payers’ view, almost everything you own and use for personal or investment purposes is a capital asset. Examples of capital assets include a home, personal-use items like household furnishings, and stocks or bonds held as investments.

When you sell a capital asset, the difference between the adjusted basis in the asset and the amount you realized from the sale is a capital gain or a capital loss.

What is short term capital gain/ loss or long- term capital gain/loss?

To arrive at your net capital gain or loss, capital gains and losses are classified as long-term or short-term. Generally, if you hold the asset for more than one year before you dispose of it, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.

Now some more learning about the capital gains/losses.

If you have a net capital gain, a lower tax rate may apply to the gain than the tax rate that applies to your ordinary income. The term “net capital gain” means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss for the year.

The term “net long-term capital gain” means long-term capital gains reduced by long-term capital losses including any unused long-term capital loss carried over from previous years.

The term “net short-term capital loss” means the excess of short-term capital losses (including any unused short-term capital losses carried over from previous years) over short-term capital gains for the year.

How about learning the tax rates of capital gains?

Net capital gains are taxed at different rates depending on overall taxable income, although some or all net capital gain may be taxed at 0%. For taxable years beginning in 2024, the tax rate on most net capital gain is no higher than 15% for most individuals.
A capital gains rate of 0% applies if your taxable income is less than or equal to:

• $47,025 for single and married filing separately;
• $94,050 for married filing jointly and qualifying surviving spouse; and
• $63,000 for head of household.

A capital gains rate of 15% applies if your taxable income is:

• more than $47,025 but less than or equal to $518,900 for single;
• more than $47,025 but less than or equal to $291,850 for married filing separately;
• more than $94,050 but less than or equal to $583,750 for married filing jointly and qualifying surviving spouse; and
• more than $63,000 but less than or equal to $551,350 for head of household.

However, a capital gains rate of 20% applies to the extent that your taxable income exceeds the thresholds set for the 15% capital gain rate.

Net short-term capital gains are subject to taxation as ordinary income at graduated tax rates.

Limit on the deduction and carryover of losses

If your capital losses exceed your capital gains, the amount of the excess loss that you can claim to lower your income is the lesser of $3,000 ($1,500 if married filing separately) or your total net loss shown on line 16 of Schedule D (Form 1040), Capital Gains and Losses. Claim the loss on line 7 of your Form 1040, Form 1040-SR or Form 1040-NR. If your net capital loss is more than this limit, you can carry the loss forward to later years. You may use the Capital Loss Carryover Worksheet found in Publication 550 or in the Instructions for Schedule D (Form 1040) PDF to figure the amount you can carry forward.

Now about the form 1040 U.S. Individual Income Tax Return

It is reproduced as under.

https://www.irs.gov/pub/irs-pdf/f1040.pdf

Some brief explanations on the form.

Basic format of form 1040 for 2024 reads as under:

• Filing Status
• Digital Assets
• Standard Deduction
• Dependents
• Income
• Tax and credits
• Payments
• Refund
• Amount you owe
• Third party designee
• Sign here
• Paid preparer uses only.

Depending upon the complexity of the details of your income/credits/deductions, you may have to use Schedules like A, B, C, D, E, and F.

Amended tax return

Amended Return File Form 1040-X to change a return you already filed. Generally, to timely claim a refund on your amended return, Form 1040-X must be filed within 3 years after the date the original return was filed or within 2 years after the date the tax was paid, whichever is late.

You can file Form 1040-X electronically with tax filing software to amend Forms 1040 and 1040-SR

With the new developments arising on the taxation dawn, let us look at the prospects of making more income.

Digital assets

Under form 1040 On the front- page new item appears as digital assets. Let’s learn about this most inquisitive asset class in the world.

What’s a digital asset?

For U.S. tax purposes, digital assets are considered property, not currency.

A digital asset is stored electronically and can be bought, sold, owned, transferred or traded.

The tax definition of a digital asset is any digital representation of value recorded on a cryptographically secured, distributed ledger (blockchain) or similar technology (Infrastructure Investment and Jobs Act).

“All taxpayers filing 2022 tax year Forms 1040 and 1040-SR must check a box indicating whether they received digital assets as a reward, award or payment for property or services or disposed of any digital asset that was held as a capital asset through a sale, exchange or transfer.”

The instructions issued for 2022 tax year has not yet been changed and remain the same for 2024 tax year too.

What are the examples of digital assets?

Examples of digital assets transactions include:

• A sale of digital assets.
• The receipt of digital assets as payment for goods or services provided.
• The receipt or transfer of digital assets for free, without providing any consideration, that does not qualify as a bona fide gift.
• The receipt of new digital assets as a result of mining and staking activities.
• The receipt of new digital assets as a result of a hard fork.
• An exchange of digital assets for property, goods or services.
• An exchange or trade of digital assets for another digital asset(s).
• Any other disposition of a financial interest in digital assets.

Reporting digital assets transactions

• If the “yes” box is checked, taxpayers must report all income related to their digital asset transactions.

How a digital asset is used?

A digital asset that has an equivalent value in real currency, or acts as a substitute for real currency, is referred to as convertible virtual currency, for example, a cryptocurrency. It can be:

• Used to pay for goods and services
• Digitally traded
• Exchanged for or converted into currencies or other digital assets
• How does one report digital assets transactions?
• Taxpayers should use Form 8949, Sales and other Dispositions of Capital Assets, to figure their capital gain or loss and report it on Schedule D (Form 1040), Capital Gains and Losses.
• Various facts related to short term capital gain/loss or long- term capital gain/loss will be applicable as the case may be.
• If the transaction was a gift, they must file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.
• If individuals received any digital assets as compensation for services or disposed of any digital assets they held for sale to customers in a trade or business, they must report the income as they would report other income of the same type. For example, they would report W-2 wages on Form 1040 or 1040-SR, line 1a, or inventory or services on Schedule C.

How to file the return?

If you e-file your return, there is no need to mail it. E Filing of tax returns enable timely receipt of tax refund. (In 2022, taxpayers filed 153.8 million tax returns, reported earning nearly $14.8 trillion in adjusted gross income (AGI), and paid $2.1 trillion in individual income taxes. The average income tax rate in 2022 was 14.5 percent.)

Conclusion

Just with the flow of snow and other welcome signs of winter games, U.S. Tax returns are the welcome signs for US tax payers who have adhered to the time frame, paid the taxes on time, and witnessed the best economic nation during the last nearly 100 years. US Tax returns have evolved over the time and helped to attract the best human talent enabling other nations to follow. Please use the talents of a CPA to handle your tax filing and facing IRS and other regulatory bodies in USA over time.

Reference

1040 instructions from IRS website

https://www.irs.gov/pub/irs-pdf/i1040gi.pdf

Disclaimer: Obviously, this write up, guided, adequately by irs.gov website’s instructions/forms are purely informatory in nature and do not constitute any legal advice, or tax filing advice, and you are advised to use the services of a CPA to fulfil your tax obligations.