Tax Year 2024 Updates: Essential Insights for Tax Professionals
As we prepare for tax year 2024, professionals must stay ahead of industry shifts to provide top-tier service to their clients. From the ethical use of AI to significant IRS updates affecting compliance, reporting thresholds, and tax credits, understanding these changes is vital. Below, we explore key updates and their implications for tax practices.
Using AI Responsibly in Your Tax Practice
Artificial intelligence is revolutionizing how tax professionals handle workflows and client services. However, its use demands caution. Sensitive data entered into AI tools may be insecure, risking breaches of privacy. Always evaluate the security measures of AI platforms to protect client confidentiality.
AI-generated content also poses risks, as it can include errors or outdated information. In a precision-dependent industry like tax preparation, blind reliance on AI could harm your credibility. Establishing an AI use policy, including secure data handling, accurate verification processes, and awareness of data sources, is crucial to leveraging AI effectively and ethically.
Key Takeaway: Adopt clear policies to balance AI’s benefits with responsible and secure usage.
IRS Compliance Letters for High-Income Non-Filers
The IRS is addressing over 125,000 high-income non-filers from 2017 to 2021, thanks to Inflation Reduction Act funding. This initiative targets taxpayers earning over $400,000 and prioritizes those with incomes exceeding $1 million. Compliance letters are being issued, urging recipients to file overdue returns promptly to avoid penalties of up to 25%.
Non-filers risk substitute returns, which exclude deductions and credits, leading to higher tax bills. For businesses and individuals, addressing these notices quickly is essential to minimize financial and legal consequences.
Key Takeaway: High-income non-filers may want to act promptly to resolve tax obligations and avoid escalating penalties.
Changes to Form 1099-K Reporting Thresholds
The IRS is phasing in reduced reporting thresholds for third-party settlement organizations (TPSOs), reported yearly on a Form 1099-K. For 2024, TPSOs must report payments exceeding $5,000, with the threshold dropping to $2,500 in 2025. Full implementation of the $600 threshold begins in 2026.
The IRS has also provided temporary relief from penalties for backup withholding obligations in 2024, giving businesses time to adapt. However, compliance with reporting laws remains a priority, and businesses must align their practices with these new thresholds.
Key Takeaway: Prepare for phased threshold reductions and make sure systems are ready for 2026 compliance.
Employee Retention Credit (ERC) Claims
The IRS continues processing 400,000 Employee Retention Credit (ERC) claims, worth $10 billion in eligible refunds. However, improper claims stemming from some aggressive marketing efforts have led to increased audits and fraud investigations.
Businesses can leverage the Voluntary Disclosure Program (VDP), open through November 22, 2024, to correct improper claims with reduced penalties. Additionally, a consolidated claim process helps third-party payers resolve inaccuracies.
Key Takeaway: Businesses should consider their ERC claims, correct errors through the VDP, and consult tax professionals for compliance guidance.
Clean Vehicle Tax Credit Updates
The Clean Vehicle Tax Credit offers up to $7,500 for qualified electric or fuel cell vehicles (EVs/FCVs) placed in service between 2023 and 2032. Eligibility depends on income thresholds, battery capacity, and assembly location. Starting in April 2023, vehicles must also meet critical mineral and battery component standards to qualify for the full credit.
Buyers may want to check in with their dealers to make sure they provide proper documentation and file Form 8936 with their tax returns. Accurate record-keeping is essential to claim this credit successfully.
Key Takeaway: Buyers must confirm eligibility criteria and retain proper documentation to claim the Clean Vehicle Tax Credit.
Tax year 2024 brings several critical updates that demand attention from tax professionals. By staying informed about AI use, IRS compliance measures, changing thresholds, and evolving tax credits, you can position your practice for success and deliver exceptional service to your clients.
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Sources:
Credits for new clean vehicles purchased in 2023 or after | Internal Revenue Service
Revised Timeline Regarding Implementation of Amended Section 6050W(e) | Internal Revenue Service
