January 29 marks the start of the 2024 tax year. Many have already completed the forms and made the necessary computations; while some may be rewarded with the anticipated refund, others will learn that they owe Uncle Sam money. If the latter applies to you, keep reading to learn more about the potential causes of your IRS debt.
Completion Of Form W-4
In 2023, if you changed jobs, you were required to complete Form W-4. The personal information reported in this document is used to calculate the appropriate amount of withholding from your income. These details include the status of your filing, if you or your spouse work multiple jobs, whether you have any other tax credits or dependents, and whether you have any other taxable income. Any change in this information from year to year may have an impact on the withholding rate and result in a debt to the Treasury.
Self Employment To Make Ends Meet
Many people search for a side job in the vast realm of self-employment to make ends meet. When it comes to taxes, freelance writers and Uber drivers are in a different league altogether. In theory, you have to figure out and pay the appropriate taxes for each work you complete if your employer doesn’t withhold money from your paycheck. The payment is often done every quarter, and failing to make it or doing it incorrectly might get you into trouble with the tax authorities. Your tax status is affected if you are married or divorced, have children, are widowed (sadly), or have children who are older than 18. In particular, if your children have flown the nest, you will have to pay more in taxes because you are unable to claim the child tax credit.
You might have accrued a debt to the government even if you lost your job, got unemployment benefits, and subsequently found another job. Recall that as of 2021, unemployment benefits are subject to taxes. If you are among those who still include all of your deductions, you can discover that you have a debt rather than a refund. It’s possible that last year’s tax circumstances were different due to reduced medical costs, the completion of student loan or mortgage repayment, or both. Any of these adjustments removed a deductible item, which might have reduced your reimbursement or put you in debt.
You might have moved into the next tax rate if your pay increased the previous year. In the 22% bracket is a single individual whose income falls between $44,725 and $93,375. You reach the 24% bracket after you cross that upper bound. You might have accrued debt if you didn’t modify your withholding following your rise. Similarly, you may have had fewer tax liabilities due to your higher income if it disqualified you from the revenue that is generated by the tax credit. You will be required to pay taxes on the gains of your investment if you invested last year, regardless of whether it was in real estate, individual stocks, ETFs, cryptocurrencies, or any other category the IRS considered.