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All Contents © 2020The Kiplinger Washington Editors
By Kimberly Lankford, Contributing Editor
| July 23, 2018
If you discovered that you missed taking valuable deductions or tax credits in the past, you have up to three years after the tax-filing deadline to file an amended return. Now's the time to look back over your returns from 2015, 2016 and 2017 to see if you missed any key breaks—and could get extra cash from the government.
To file an amended return, submit a separate Form 1040X for each year you're amending, note the changes you're making, and attach any tax forms that are affected by the change. And if the changes reduce your adjusted gross income or qualify you for other breaks, you may also want to amend your state income-tax return and get a refund there, too.
It can take the IRS up to 16 weeks to process an amended federal return. You can check your return's status starting three weeks after you filed using the Where's My Amended Return? tool. For more information about amended returns, see the IRS's Amended Returns factsheet.
Consider these 10 money-smart reasons to amend your tax return:
A bill signed into law in February 2018 extended more than 30 tax breaks that had expired at the end of 2016, which means that people who filed their returns early may have missed out on some money-saving opportunities. Many of those breaks applied to businesses, but Congress also brought back the deduction for mortgage insurance premiums, several tax breaks for energy-efficient home improvements, and the tuition-and-fees deduction (more on these in a few slides). Also, if your mortgage lender discharged any of your debt on your principal residence in 2017 (which often happens after a foreclosure), you may be able to exclude the amount from your income.
For more information about these breaks, see the IRS's Three Popular Tax Benefits Retroactively Renewed factsheet.
A frequently overlooked tax break is the American Opportunity Credit, which is worth up to $2,500 per student for each of the first four years of college. The student must be enrolled at least half-time, and money spent on tuition, fees and books (but not room and board) count toward the credit. To qualify for the credit in 2017 (and the past few years), your adjusted gross income must have been less than $90,000 for single filers and $180,000 for joint filers.
File Form 8863 along with 1040X to claim this credit. See IRS Publication 970 for more information.
You may still be eligible for a tax break even if you aren’t in your first four years of college or aren't going to school full-time. If you're in graduate school or taking some continuing education courses, you can qualify for the Lifetime Learning Credit, which can be worth up to $2,000 per year (based on 20% of up to $10,000 you spend on tuition at an eligible educational institution). To qualify in 2017, your income must have been less than $66,000 for single filers or $132,000 for joint filers (the income levels were slightly lower in previous years).
See IRS Publication 970 for more information about the rules. File Form 8863 along with your 1040X to claim this credit.
The tuition-and-fees deduction is one of the most popular tax breaks that wasn't extended for 2017 until after the tax-filing season began. If you missed taking this break, you can file an amended return and get a refund. This deduction can reduce your taxable income by up to $4,000 that you spent on college if you weren't eligible for the American Opportunity or Lifetime Learning Credit. To qualify, your 2017 income must have been less than $80,000 if single or $160,000 if married filing jointly.
Submit IRS Form 8917 along with 1040X to take this deduction. See IRS Publication 970 for more information.
The retirement savers' tax credit is one of the most frequently overlooked tax breaks. If you made any contributions to a retirement-savings plan—whether it was an IRA, 401(k), 403(b), or another plan—then you may be able to cut your tax bill by up to $1,000 (or $2,000 if married filing jointly) in addition to other tax breaks you receive for contributing to the retirement plan. The lowest-income people get the highest credit, but you could still get a partial credit if your income was less than $31,000 in 2017 if single, $46,500 if head of household, or $62,000 if married filing jointly (the income figures were slightly lower for earlier years; see this IRS factsheet for the 2015 and 2016 income levels, too).
Retirees who work part-time and contribute to an IRA often forget to see if they’re eligible for this break after they leave their full-time jobs and their income drops.
File Form 8880 to claim the credit, in addition to Form 1040X.
If you paid for child care for children younger than 13 while you and your spouse worked (or if one spouse is a full-time student), you could qualify for the dependent-care credit worth up to $1,050 if you have one child or up to $2,100 if you have two or more children. A wide variety of expenses qualify, including day care, a nanny or babysitter, preschool costs (but not kindergarten), before-school or after-school care, and even a day camp during the summer or school breaks.
The credit is worth between 20% and 35% of your eligible child-care expenses, with $3,000 in expenses counting for one child, or $6,000 for two or more. The lower your income, the larger the credit, but there’s no income cutoff—families earning more than $43,000 can still claim a credit for up to 20% of the eligible costs. And you may still be able to take a partial credit, even if you have a dependent-care flexible spending account at work. You can't double-dip benefits, and the dependent-care FSA usually covers your first $5,000 in child-care costs. But if you have two or more children, the dependent-care credit counts up to $6,000 in eligible expenses. That means you can still max out the FSA and claim the dependent-care credit for up to $1,000 in expenses, which could cut your tax bill by $200 to $350, depending on your income.
See IRS Publication 503 for more information. File Form 2441 in addition to 1040X to claim the credit.
Up to $2,500 in student-loan interest can be tax-deductible if your modified adjusted gross income in 2017 was less than $80,000 if single or $165,000 if filing a joint return. You do not have to itemize your deductions to qualify, but you can't be claimed as a dependent on your parents' return. But many people don't realize that you may even be able to deduct any interest your parents paid on a loan for which you are liable. (Your parents can't deduct the interest themselves if they're not liable for the debt.) See IRS Publication 970 for more information.
You may qualify for a tax break for energy-efficient home improvements made over the past few years (including in 2017, a year that was added as part of the extended tax breaks). You could get a break if you installed energy-efficient air-conditioning, water heaters, boilers or furnaces that meet certain standards, or if you used certain roofing materials. You could get a larger credit if you added geothermal heat pumps or solar energy systems.
See EnergyStar.gov's 2017 energy-efficient tax credit page. Also see the federal tax archives with tax credit information for previous years. File Form 5695 along with 1040X to claim this credit.
Even though the new tax law discontinues the deduction for moving expenses starting in 2018, it's not too late to take this break for previous years. For 2017 and earlier, you can deduct your moving expenses if you moved to take a new job that was at least 50 miles farther from your old home than your old job was. Or if you started your first job, you could deduct moving expenses if your new job was at least 50 miles away from your previous home. You can deduct the cost of hiring movers (for packing and transporting your possessions) or the cost of renting a moving van. You can also deduct travel costs to the new home incurred by you and your family. If you drove your own car, you could deduct 17 cents a mile in 2017 (19 cents per mile in 2016, or 23 cents per mile in 2015).
Submit Form 3903 with Form 1040X. See IRS Publication 521 for more information.
It's not unusual for people who filed their tax returns early to overlook a 1099 reporting income from a broker, financial institution, or employer that hired you for freelance work. If the 1099 reported income (from capital gains or a dividend, for example) after you filed your 2017 taxes, you'll need to amend your return to avoid penalties. You won't get a refund, but you won't end up with an unexpected bill, either.