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Tax Reform Updates: What Accountants Need to Know for the 2024 Filing Season

By Francine A. Laourou
Finances Business Accounting

Tax reform remains a dynamic and complex area that significantly influences accounting practices and taxpayer compliance. The 2024 filing season introduces several important changes stemming from recent legislative enactments, regulatory updates, and judicial interpretations. These developments affect individual and corporate taxpayers, necessitating that accounting professionals stay informed to provide accurate guidance and ensure compliance. This article outlines key tax reform updates relevant for the 2024 filing season, discusses their implications, and highlights best practices for accountants.

Overview of Recent Tax Reform Developments

Several legislative and administrative changes have shaped the tax landscape entering 2024:

  • Inflation Adjustments: The Internal Revenue Service (IRS) annually adjusts tax brackets, deductions, and credits for inflation. For 2024, these adjustments reflect the latest Consumer Price Index data, impacting taxable income thresholds and tax liabilities (IRS, 2023).

  • Extension and Modification of Tax Credits: Certain tax credits, such as the Child Tax Credit and the Earned Income Tax Credit, have been extended or modified, affecting eligibility and benefit amounts (Congressional Research Service, 2023).

  • Corporate Tax Changes: Amendments to corporate tax provisions, including modifications to the Global Intangible Low-Taxed Income (GILTI) regime and interest expense limitations, influence corporate tax planning (Joint Committee on Taxation, 2023).

  • Pass-Through Entity Provisions: Updates to the Qualified Business Income (QBI) deduction under Section 199A, including clarification on aggregation rules and wage limitations, affect many small and medium-sized businesses (IRS, 2023).

  • International Tax Provisions: Changes related to the Base Erosion and Anti-Abuse Tax (BEAT) and Foreign-Derived Intangible Income (FDII) reflect ongoing efforts to address international tax avoidance (OECD, 2023).

Key Updates Affecting Individual Taxpayers

1. Adjusted Tax Brackets and Standard Deduction

For 2024, the IRS increased tax bracket thresholds and the standard deduction to account for inflation. For example, the standard deduction for single filers rose to $14,600, while the top marginal tax rate remains at 37% but applies to higher income levels (IRS, 2023). These changes may reduce tax liabilities for many taxpayers.

2. Child Tax Credit and Other Credits

The Child Tax Credit reverted to pre-2021 rules, with a maximum credit of $2,000 per qualifying child under age 17. Phase-out thresholds were also adjusted for inflation (Congressional Research Service, 2023). Additionally, the Earned Income Tax Credit saw minor eligibility expansions.

3. Retirement Account Contributions

Contribution limits for retirement accounts such as 401(k)s and IRAs increased, allowing taxpayers to defer more income from taxation (IRS, 2023). Accountants should advise clients on maximising these benefits for tax planning.

Corporate and Business Tax Changes

1. Global Intangible Low-Taxed Income (GILTI)

The GILTI regime, designed to tax certain foreign income of U.S. corporations, underwent modifications including changes to the deduction percentage and foreign tax credit limitations (Joint Committee on Taxation, 2023). These adjustments affect multinational corporations’ effective tax rates and compliance strategies.

2. Interest Expense Limitation

The limitation on the deductibility of business interest expense under Section 163(j) was clarified, with increased thresholds for small businesses and exceptions for certain real estate enterprises (IRS, 2023). This impacts leverage decisions and tax planning.

3. Qualified Business Income (QBI) Deduction

The IRS issued guidance on aggregation rules allowing taxpayers to combine multiple trades or businesses for QBI deduction purposes, subject to specified criteria (IRS, 2023). Understanding these rules is critical for pass-through entities to optimize deductions.

International Tax Considerations

International tax provisions continue to evolve in response to global initiatives such as the OECD’s Base Erosion and Profit Shifting (BEPS) project. U.S. tax reforms align with these efforts by adjusting BEAT and FDII provisions, affecting multinational corporations’ tax planning and reporting obligations (OECD, 2023).

Implications for Accounting Professionals

Accounting professionals must proactively update their knowledge and systems to accommodate these tax reform changes. Key considerations include:

  • Client Education: Inform clients of changes affecting their tax liabilities and planning opportunities.

  • System Updates: Ensure tax software and internal systems reflect the latest rates, limits, and rules.

  • Compliance Monitoring: Stay alert to IRS guidance and rulings that clarify or modify tax provisions.

  • Strategic Planning: Advise clients on leveraging credits, deductions, and retirement contributions to improve tax outcomes.

  • International Coordination: For clients with cross-border activities, coordinate with international tax advisors to address complex compliance issues.

Best Practices for Tax Professionals

1. Stay Informed on Legislative Changes

Regularly monitor updates from the IRS, Congressional Research Service, and professional organizations to stay current with tax law changes.

2. Invest in Professional Development

Attend continuing education seminars, webinars, and conferences focused on tax reform and compliance updates.

3. Update Technology and Systems

Ensure tax preparation software and client management systems are updated to reflect current tax law changes.

4. Develop Clear Communication Strategies

Create client newsletters, blog posts, and educational materials explaining complex tax changes in accessible language.

5. Enhance Review Procedures

Implement robust review processes to ensure accuracy in tax preparation and compliance with new requirements.

Conclusion

The 2024 tax filing season presents a landscape shaped by inflation adjustments, legislative modifications, and regulatory clarifications. Accounting professionals play a crucial role in navigating these changes to ensure accurate reporting and effective tax planning. By staying informed and adopting best practices, accountants can help clients minimize tax burdens, maintain compliance, and capitalize on available incentives.

References

Congressional Research Service. (2023). Overview of the Child Tax Credit. Retrieved from https://crsreports.congress.gov

Internal Revenue Service (IRS). (2023). Tax Year 2024 Inflation Adjustments. Retrieved from https://www.irs.gov

Joint Committee on Taxation. (2023). Technical Explanation of Tax Provisions. U.S. Congress. Retrieved from https://www.jct.gov

OECD. (2023). Base Erosion and Profit Shifting (BEPS) Project. Organisation for Economic Co-operation and Development. Retrieved from https://www.oecd.org

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