You pay income and capital gains taxes on any income earned or gains received, respectively. In order to lower this overall tax liability, Congress has created several tax breaks (more formally known as tax credits and tax deductions) to entice taxpayers to make certain desirable actions. In doing so, you're able to reduce your tax liability.
However, times change and with them, so do tax laws. Most recently, during a tax reform enacted at the end of 2017, certain tax breaks have been changed, extended or even added. This impacted taxes not only now and in the future, but also in the past.
If the list below sounds intimidating, have no fear because TurboTax tracks over 350 tax deductions and credits to ensure you get the biggest tax refund. But before we get there, we'll walk through some of the tax break changes and when it's worthwhile to file an amended return.
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Major tax break changes from tax reform
Tax changes in 2018
- Business property
- Child Tax Credit
- Charitable contribution limit
- Corporate Income Tax Rate
- Earned Income Tax Credit
- Estate / "Death" Tax
- Foreign Earned Income Exclusion
- Gambling Expenses
- Health and Medical Savings Account Contributions
- Home Mortgage Interest Limits
- Income Limit on Social Security Tax
- Income Tax Brackets
- Medical Expense Deduction (before extension and change)
- Retirement Plan Contributions
- Standard Deduction Limits
- State and Local Taxes
Tax extensions in 2018
- American Opportunity Tax Credit.
- Charitable Donations from IRAs.
- Educator Expense Tax Deduction.
- Health Insurance Premium Tax Credit.
- Lifetime Learning Tax Credit.
- Mortgage Insurance Premiums.
- Residential Energy Efficient Property Tax Credit.
- Student Loan Interest Deduction.
- Tuition and Fees Deductions.
Tax credits added in 2018
- Personal and Dependent Exemptions.
- Miscellaneous Deductions Subject to 2% AGI Floor.
- Income Phaseout on Itemized Deductions.
- Moving Expenses Deduction (limited exception allowed for active-duty military forced to relocate).
- Casualty and Theft Loss (now only allowed for federally declared disasters).
- Roth IRA Conversion.
- Home Office Deduction for Employees.
- Automobile Mileage Rate Deductions for Unreimbursed Employee Travel Expenses.
- Nonbusiness Energy Property Credit.
While most of these changes were passed into law at the end of 2017, the effective date for the majority of these provisions was in 2018. Due to the impermanent nature of the tax reform bill, all of these changes are set to revert to 2017 law after 2025 with the exception of the corporate tax rate. This change is permanent and will remain at 21%, down from the 35% seen in 2017 prior to the law passing.
Finally, keep in mind that not every state adopted the new federal tax policies. Some, like California, Texas, Minnesota, North Carolina, South Carolina, and New Hampshire, instead opted to not change their own laws to be more favorable to residents.
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Tax changes in 2019 and 2020
- Alimony: In the past, the IRS allowed individuals paying alimony to deduct this from their taxable income while those receiving alimony counted it as part of their taxable income. Tax reform changed this rule effective for any alimony agreements entered into after December 31, 2018.
- Elimination of the shared-responsibility payment (aka the "individual mandate" under the Affordable Care Act).
- Medical Expenses Deduction: Congress passed an extenders bill in 2019 which made the 7.5% deduction floor apply for 2019 tax year returns as well.
Previous to tax reform, taxpayers could deduct medical expenses if their qualifying medical expenses exceeded 7.5% of their adjusted gross income. This threshold, regardless of taxpayer age, applied to both 2017 and 2018 returns, but prior, the threshold came to 10% of adjusted gross income for individuals under the age of 65.
To illustrate, if you make $100,000, you could deduct any medical expenses over $7,500 if you itemized your deductions in 2017 and 2018. However, in 2019, Congress passed a separate tax extender bill which kept the 7.5% rate effective for 2019 tax returns as well.
If nothing changes, starting on January 1, 2020, all taxpayers may only deduct the amount of qualified medical expenses exceeding 10% of their adjusted gross income.
Should I file an amended return?
Have you ever filed your tax return and realized after the fact that you made a mistake or found out about new information that would change your return? You probably sat back and immediately asked yourself, "Can I redo my taxes?"
Instead of starting over with your taxes, though, you can amend your tax return and correct any errors or oversights. But this isn’t likely something you probably want to do unless absolutely necessary, so how do you know when you should?
An amended return should be filed if you need to:
- Correct an error or omission to your income
- Change your filing status
- Change your deductions
- Claim or correct a tax credit
Don’t underestimate the benefits of filing an amended return, either. By making sure your tax return is accurate you can maximize your refund or lower what you owe. Not to mention the fact that you’ll be mitigating the risk of receiving a notice or IRS audit in the future.
How to file an amended return
To proceed with preparing and filing your amended return, all you need to do is file Form 1040X, Amended Tax Return, along with the corrected or additional documents you didn't originally file with your return. This will amend your return and provide you an accurate picture of your tax circumstances.
If you experienced changes related to any of the items above which have occurred since tax reform went into effect, you should file amended returns as soon as possible to correct any errors or oversights.