The government may pass legislation that influences current and future tax rules. But it’s possible that these modifications could also affect taxes from past filings. How should one go about re-filing taxes by amending tax returns to take advantage of the new updates, and is it worth the effort?
Do I Have the Option to Revise My Taxes by re-filing them?
Have you ever finished filing your taxes only to discover afterward that an error had been made or fresh data was available, which would alter your return? You most likely asked yourself in a moment of worry, “Do I have the choice to revise my taxes?”
Re-filing taxes by amending tax returns is a common scenario, and this article offers insight into the process and potential tax breaks to take advantage of. To start, here’s what you need to know about amending your taxes.
Are you in need of making changes to a previous tax return?
- You may have to file an amended return to:
- Modify the reported income on your taxes.
- Alter the filing status.
- Revise deductions made.
- Update or amend any existing tax credit claims.
Re-filing tax by amending tax returns can have significant benefits that shouldn’t be overlooked. Not only will it ensure that your tax return is accurate, which could increase your refund or lower the amount you owe, but it may also help avoid future IRS notices and audits.
Tax changes for 2019 through 2022
The end of 2017 saw a number of changes to the tax law, which took full effect in 2018. Most notably, the corporate tax rate dropped dramatically from 35% to 21%, permanently. However, other implemented changes will have a short-term effect as they are set to be reverted back to pre-2018 levels by 2025.
Recent tax changes include the following:
2020 and 2021 Stimulus payments
Have you yet to receive your stimulus payments for either of the last two years? Even though the payments initially function as an advance on a potential tax credit, there are still ways to receive them. You can still get your hands on them by re filing your taxes by amended tax return with the IRS.
Alimony
As of December 31, 2018, the Internal Revenue Service has significantly changed the taxation process for alimony payments. Before this date, individuals who paid alimony had the right to deduct it from their taxable income, while those who received payments were obligated to include it in their taxable income.
Charitable contributions
Regarding donations for a good cause, taxpayers could receive a special tax break in 2020 and 2021. This year, individuals can claim up to $300 as a deduction from their standard deduction related to cash contributions made to charity. This tax deduction amount increases to $600 for married couples filing jointly in 2021. Starting in 2022 and onward, the only way deductions will be available for donations is by itemizing your taxes on Schedule A.
Lifetime Learning Credit
Beginning in 2021, the income limits to qualify for the tax credit known as the “Lifetime Learning Credit” were raised and will remain at that same level throughout 2022 too.
- Single Tax Filers: $80,000 to $90,000
- Married Couples Joint Tax Filers: $160,000 to $180,000
Mortgage insurance premiums
Thanks to the CAA passing at the end of 2020, taxpayers can take advantage of deducting their 2021 premiums on their mortgages but not for the tax year 2022.
Pass-through deductions
Recent changes to the tax code have significantly increased the maximum income thresholds for owners of sole proprietorships, partnerships, LLCs, and S corporations when claiming a 20% deduction on qualified business income. These deductions will be phased out starting in 2022.
- Single Tax Filers: $170,050
- Married Couples Joint Tax Filers: $340,100
Retirement savings limits
For those saving for retirement, it is good news that contribution limits to certain accounts are rising. For a 401(k), the amount got raised to $20,500 for 2022.
Required Minimum Distributions (RMDs)
Thanks to the SECURE Act, the age at which RMDs must begin has now been raised permanently from 70 1/2 to 72. While 2020 saw an exemption from this requirement, 2021 and 2022 will require minimum distributions yet again.
Renewable Energy Investment Tax Credit
Enacted in 2021, the Renewable Energy Investment Tax Credit provided a 26% credit to taxpayers. Subsequently, legislation passed in 2022 transformed this tax incentive into the Residential Clean Energy Credit with an increased rate of 30%. This program is set to be effective through 2034, after which it will cease.
Student Loans
From 2020 to 2025, employees have the opportunity to benefit from a special part of the CARES Act. This provision allows employers to give up to $5,250 towards an employee’s existing or future college debt without it affecting their taxable income. It is a great incentive for those struggling with large amounts of loans and needing help repaying them.
Shared-Responsibility Payment
The individual mandate, commonly called the “Shared-responsibility payment” under the Affordable Care Act, is no longer in effect.
The 7.5% Deduction
In 2019, Congress passed an extenders bill that enabled taxpayers to qualify for a 7.5% deduction floor for that year’s tax returns. And in December of 2020, this financial benefit became permanent with the passage of what is known as the Consolidated Appropriations Act (CAA). This act made it so individuals and businesses would be eligible to take advantage of this 7.5% deduction.
The Standard Deduction:
In order to keep up with inflation, a higher standard deduction has been put into effect for 2021 and 2022. Specifically, this allows taxpayers to adjust their income by an amount determined by law so that they can pay less in taxes.
- Single Tax Filers: $12,550 for 2021, $12,950 for 2022
- Married Couples Joint Tax Filers: $25,100 for 2021, $25,900 for 2022
- Head of Household Tax Filers: $18,800 for 2021, $19,400 for 2022
In general, taxes can significantly burden income and capital gains earned throughout the year. In order to encourage individuals to partake in beneficial actions, Congress has issued a variety of tax breaks. These provide Americans with an opportunity to lessen their overall tax liability.
Limiting your tax payment is possible by filing an amended return. Before taking this step, be sure to have a strong understanding of the applicable tax reforms, extensions and credits.
It is important to note that certain states chose to remain independent of the federal tax policies. Sates like Texas, California, etc. have decided against changing their laws in order to make them more beneficial for their citizens.
How to file an amended return?
First step we recommend is to reach out to our dedicated tax professional for a step by step support on re-filing your tax returns from start to finish.
Are you wondering the best way to submit an amended return? Here’s what you need to know. The process of re-filing taxes by amending tax returns begins by filling out Form 1040-X, Amended Tax Return. You must also attach documents that weren’t filed with your initial return but should have been included.
Beginning with the 2019 tax year, an electronic filing option has been available to amend federal returns. By taking advantage of it, you will be able to adjust your return and gain a clear comprehension of your taxes. It provides people with a straightforward way to ensure their taxes are accurate for that particular year.
In order to reclaim any refunded taxes, it is essential to abide by IRS regulations. This involves filing an amended return within either three years of when your original return was submitted, or two years from when outstanding tax payments were made – whichever date falls later.
