Amending a tax return in your favor can give you money back that you had not been entitled to before these changes. Amendments such as claiming overlooked deductions, IRS rule changes, miscalculations and a corrected 1099 or W2 can all work in your favor, giving you a larger return. You will want to make changes to past tax returns if there are errors that may be flagged by the IRS, including unreported income.
Self-employed individuals are able to deduct all premiums paid for health insurance. This deduction is not available if the individual is eligible to participate in an employer’s health care plan but chooses to decline. If you qualify for coverage under a spouse’s healthcare plan but decline this also, the tax deduction is ineligible. Keep in mind that self-employed individuals are not able to deduct more than their generated income in a single calendar year.
Employees working from home are no longer able to deduct business expenses, as this deduction was eliminated in 2018. Only self-employed individuals can qualify for home office deductions. Self-employed workers can claim either $5 per square foot of home office space up to 300 square feet, or a percentage of the home and costs to maintain it as a deduction.
Lottery, and other winnings throughout the year, that are $600 or more are taxed by the IRS. If the money is received as a lump sum, you will pay the full tax amount. If it is drawn out over several years, you will be taxed by what you receive for each calendar year. The federal tax on winnings is 24% when and the local government will also take their own portion for taxes. You can expect to pay between 30-35% of taxes on your winnings.
Earned income refers to all of the ways that you get paid throughout the year. This includes your paycheck, commissions, bonuses and income less expenses for self-employed individuals. It also includes money earned from investments, interest, dividends, alimony and Social Security. Adjusted gross income refers to this money less any standard deductions that are available to you. These deductions, referred to as ‘above the line deductions’, are those that are standard to everyone regardless of whether they are itemizing.
If your annual income is $15,000 or higher, you can take advantage of the childcare expenses tax credit. This tax break allows you to deduct up to $3,000 in childcare expenses. This can include daycare, babysitter fees and even summer camp. For two or more dependents this deduction totals $6,000.
One deduction that can add up for small business owners is the home office. However, take this deduction carefully as it can trigger an IRS audit. You can qualify for this deduction if the area is used exclusively and regularly for business purposes. This area must be used as the principal location for the business, or it is a place where you regularly meet with customers.
Qualified, unreimbursed medical expenses that exceed 10% of your adjusted gross income for the calendar year can be deducted from your taxes. These deductions include preventative care, treatment, surgeries, dental and vision care. Prescription medications also fall into this deduction.
For non-cash donations that are worth less than $250, a receipt from the charity will suffice for record keeping, allowing you to deduct this on your taxes. The receipt should contain a list of all items being donated, their condition and an estimated value for each. For donations exceeding the $250 value you will need a written acknowledgement from the charity in addition to the receipt.
By itemizing deductions on your tax return, you are choosing from the many individual tax deductions, instead of taking a flat-rate deduction. In some cases, itemizing deductions can save you money on your taxes. Deductions that can be itemized include medical expenses, property taxes, charitable contributions, mortgage interest and many more.