Should you consider amending your 2018 tax return?

We understand that you’re focused on 2019, so why even consider revisiting your 2018 return? Well, some key tax breaks were resurrected in a tax law signed in 2019 that might make it worth your while.

The tax extenders package covers tax years 2018, 2019 and 2020. Extenders refer to expired or expiring tax provisions that are being extended, typically on a short-term basis. What provisions are included? We outline some highlights below.

  • College tuition and fees. The above-the-line (a deduction that the IRS allows a taxpayer to subtract from gross income) deduction of up to $4,000 for qualified college tuition and fees reduces your taxable income and you don’t need to itemize in order to get this break. However, income limits do apply and the deduction cannot be claimed if you’ve taken the American Opportunity or Lifetime Learning Credits.
  • Mortgage debt forgiveness. Individuals who faced foreclosure and had up to $2 million in mortgage debt forgiven are not required to report it as income.
  • PMI tax deduction. Most lenders require you to pay private mortgage insurance (PMI) if your down payment on a home is less than 20%. This provision would allow you to deduct PMI on homes or vacation homes, but you will need to itemize if you take this tax break. If you take the new higher standard deduction, the return of this tax break will not help.
  • Medical expenses. For families with big medical bills this is a tax break you might want to take advantage of. Qualified medical and dental expenses will remain deductible on 2018, 2019 and 2020 tax returns. But the threshold is key. You can deduct unreimbursed medical expenses to the extent they exceed 7.5% of your adjusted gross income.

Every situation is different and you will want to carefully analyze whether the cost of amending your tax return exceeds how much money you could save.

In addition, the SECURE Act or the Setting Every Community Up for Retirement Enhancement Act was passed in December of 2019 as well. The new legislation brings changes for long-term retirement savings, important changes included are outlined below.

  • Small business owners are encouraged to offer employees a 401(k) by utilizing tax credits to cover some of the costs. Before, it was often too costly for small businesses to provide this option to workers.
  • Individuals won’t be required to take a minimum distribution from retirement savings until they reach age 72. The current age requirement is 70 ½.
  • Parents can withdraw money without penalties from a 401(k) or Individual Retirement Account (IRA) to cover costs associated with child birth or adoption, up to $5,000. The change applies to distributions in 2020 and after, but you will pay income taxes on the withdrawals if it is not paid back to the account.
  • Part-time employees who have worked at least 500 hours per year for at least three consecutive years at the same employer now have the option to contribute to a company’s 401(k) plan.
  • The new law removes the age cap for setting aside savings into a traditional IRA. The current age cap is 70 ½ , but it goes away for people who have wage income. The change is only effective starting with tax year 2020.
  • Before 2020, if you inherited IRAs you could stretch out withdrawals and required tax payments on each distribution over your life expectancy. Now, inherited retirement-account distributions must be taken within 10 years, however there are a variety of exceptions and beneficiary considerations to analyze.

If you’d like to learn more about amending your 2018 tax return or the new tax laws and their timing and the opportunities they could create for you or your business, please contact us.