Inflation effects on 2018 federal tax deductions, exemptions and itemized limitations

Welcome to Part 2 of the ol’ blog’s 2018 series on tax inflation adjustments. 
We started on Oct. 19 with a look at next year’s — if there isn’t tax reform or cuts by or before then — income tax brackets and rates.
Today we look at standard and itemized deductions, personal exemptions
and limitations on these tax situations that apply to some wealthier taxpayers.
Note: The 2018 figures apply to 2018 returns that are due in 2019.
For comparison purposes, you’ll also find 2017 amounts to be used
in filing 2017 returns due next April.

Tax-Deductions 1040 form calculator_cropped

Standard deduction amounts edge up: Internal Revenue Service data show that most of us, around 70 percent, claim the standard deduction on our returns instead of itemizing.

That’s understandable. It’s easier.

There are no bundles of receipts and statements to keep. You simply look on the tax form you use and find the standard deduction amount for your filing status. 

Those standard deduction amounts typically are adjusted at least a bit each year to account for inflation. That’s again true for the coming 2018 tax year.

The following table shows the standard deduction amounts that most taxpayers younger than 65 can claim on their 2018 tax returns, which they’ll file in 2019. Knowing the amounts can help in your tax planning for next year.

But since we’ll be filing our 2017 tax year returns by mid-April 2018, you’ll also find int he final column the 2017 standard deduction amounts.

Filing Status
Standard Deduction Amount
Standard Deduction Amount 
Single   $6,500  $6,350
Head of Household   $9,550  $9,350
Married Filing Jointly   $13,000  $12,700
Qualifying Widow/Widower (Surviving Spouse)   
Married Filing Separately   $6,500   $6,350

Again, make sure you use the correct amount for the correct tax year. The amounts in column 2, the 2018 figures, are for next year’s tax planning purposes. You won’t need them to file until you do your 2018 tax return in 2019.

The third column shows the 2017 standard deduction amounts. These are what you’ll claim on your 2017 taxes that are due by April 17, 2018 (since next April 15 is on Sunday and Emancipation Day is celebrated the following Monday).

Age adds to deductions: I’ve been blogging long enough now to know that readers of the ol’ blog caught my earlier reference to “most taxpayers younger than 65” when it comes to standard deduction amounts.

The age distinction is important because tax code allows older filers and those who are visually impaired to claim additional standard deduction amounts. You do so by ticking a checkbox on Form 1040 or Form 1040A.

Each added standard deduction amount option is separate for each filer, meaning that an older married couple could check up to four boxes on their joint return. The total number of boxes checked then is used to determine the filer(s) standard deduction amount.

For the 2018 tax year, the additional standard deduction amount for the aged or the blind is $1,300. It goes to $1,600 for filers who are not married and not a surviving spouse. Those 2018 amounts are slightly larger than for 2017 returns, which are $1,250 and $1,550, respectively for the 2017 tax year.

And if you’re a taxpayer in 2018 who also can be claimed as a dependent of another filer, your standard deduction amount cannot be more than the greater of either $1,050 or $350 plus your earned income. Relatively low inflation means that’s the same as for the 2017 tax year.

Itemized deduction issues: If your total itemized deduction amount is more than your allowable standard deduction amount, then by all means itemize.

That means, unless and until it’s changed by Congress as part of tax reform, you can claim on Schedule A such things as medical expenses (as long as they exceed the adjusted gross income, or AGI, threshold), a variety of state and local taxes, charitable donations and miscellaneous expenses (again with a deduction threshold to overcome).

Itemizers generally are homeowners who are paying sizable amounts of tax-deductible mortgage interest and property taxes, as well as state income or sales taxes. Philanthropic folks also can boost their itemized deduction total.

But if you file Schedule A and make a lot of money, then you’ll lose some of the value of some of your itemized deductions. This is known as the Pease limitation, one of several laws named after their advocates, in this case the late Rep. Don Pease (D-Ohio) who championed the deduction limits on higher-income taxpayers.

For the 2018 tax year, the Pease limitations are, again based on filing status:

  • $266,700 for a Single taxpayer
  • $293,350 for a Head of Household filer
  • $320,000 for Married Jointly Filing couples or Surviving Spouses
  • $160,000 for Married Filing Separately spouses.

When you hit these itemized deduction income thresholds, your Schedule A amounts for home mortgage interest, state and local tax claims, charitable gifts and miscellaneous deductions is reduced by either 3 percent of your adjusted gross income in excess of your threshold amount or 80 percent of the amount of itemized deductions you otherwise could claim for the tax year.

Don’t freak. The IRS has worksheet you can use if you do your taxes by paper. Most of us, though, will let our tax software or tax preparer do the necessary calculations.

The Pease amounts also apply to 2017 taxes. The income triggers for the itemized deduction limits on 2017 Schedule A filings are:

  • $261,500 for a Single taxpayer
  • $287,650 for a Head of Household filer
  • $313,800 for Married Jointly Filing couples or Surviving Spouses
  • $156,900 for spouses who are Married Filing Separately.

Personal exemptions increase: In addition to deductions, either standard or itemized, most taxpayers also claim an exemption amount.

For the 2018 tax year, inflation bumps up the exemption amount to $4,150. That’s $100 more that allowed for the 2017 tax year.

Inflation also means changes in 2018 to the income levels at which a high-income taxpayer’s personal exemption amount is reduced. Yes, just like with itemized deduction, richer filers get whacked again with exemptions, facing a loss of some and possibly all of this amount based on their bigger AGIs.

This exemption reduction is known in the acronym-happy tax world as PEP, or the personal exemption phaseout.

The table below shows, again based on filing status, the income levels per filing status at which the 2018 PEP begins and the earnings level at which a filer loses his or her personal exemption amount.

Filing Status
2018 exemption
phaseout begins 
2018 exemption
Single $266,700 $389,200
Head of Household  $293,350 $415,850
Married Filing Jointly $320,000 $442,500
Qualifying Widow/Widower (Surviving Spouse)   
Married Filing Separately  $160,000 $221,250

For the 2017 tax year we’re now more than three-quarters through and its returns that are due next April, the PEP income levels at which a filers face reduced or total loss of personal exemption amounts are:

Filing Status
2017 exemption
phaseout begins 
2017 exemption
Single $261,500 $384,000
Head of Household  $287,650 $410,150
Married Filing Jointly $313,800 $436,300
Qualifying Widow/Widower (Surviving Spouse)   
Married Filing Separately  $156,900 $218,150

Yes, this second on the 2018 tax inflation adjustments series does contain a lot a numbers. Again, that’s why I’m breaking it up into separate series posts. Even my eyes, those of a dedicated tax geek, glaze over after a certain point.

But I do hope that these tables and explanations of how both the 2017 and 2018 tax years and we filers are affected by inflation help when you file your 2017 return next year and also make moves to lower your 2018 tax bill.

And stayed tuned! More inflation figures are on the way.

You can read the first part of the 2018 tax inflation series with details on next year’s tax rates and brackets, where you’ll also find an index of more posts already published or in the works.





2018 tax rates, income brackets inflation adjustments


This is the first in a 10-part series on the 2018 tax year inflation adjustments. Links to the other posts are at this end of this article.

The White House and Congressional Republicans are still hoping to get some tax changes finalized by the end of the year

The IRS, however, isn’t waiting on Capitol Hill.

The Internal Revenue Service on Thursday, Oct. 19, released its annual compilation of tax provisions that are affected by inflation. It also issued next year’s retirement plan contribution changes.

The upshot is that most amounts will increase in 2018. 

Numbers, we’ve got lots o’ numbers: The full extent of most of the inflation adjusted tax changes are covered in Revenue Procedure 2017-58. That document is a full 28 pages long and includes some tax figures that most of us average taxpayers don’t really care about.

The pension changes for 2018 that are detailed in IRS Notice 2017-64 take up another three pages.

But even the tax provisions that matter to you, me and every other Joe and Jane Taxpayer, such as just how much income will be what tax brackets and how much we can stash in our 401(k) plans and the standard deduction amounts for the various filing statuses, contain a lot of numbers.

The sheer amount of info is why I’m doing a tax inflation adjustments series, just like I did around this time last year.

And yes, observant readers of the ol’ blog, I am using the same graphic for this first of the 2018 tax inflation posts, which like last year’s, is a look at next year’s income tax rates and brackets.

2018 still has (for now) 7 tax brackets: We been operating with seven tax rates and income brackets for five years now, ever since we backed away from the fiscal cliff.

The GOP’s draft tax reform outline, however, would like to cut those tax rates and brackets by more than half, to just three.

Until that happens (if it happens), though, the IRS is preparing to tax our earnings in 2018 at rates that start at 10 percent and go to a maximum 39.6 percent.

The amount of income that falls into each of these tax rates for each filing status has again been bumped up a bit for inflation.

Here are those new amounts for the coming tax year:

2018 tax rates and income brackets

Tax Rate Single  Head of Household Married Filing Jointly
or Surviving Spouse
Married Filing Separately
10%  Up to $9,525   Up to $13,600   Up to $19,050   Up to $9,525
15% $9,526 to $38,700   $13,601 to $51,850   $19,051 to
  $9,526 to $38,700
25% $38,701 to $93,700   $51,851 to $133,850   $77,401 to $156,150   $38,701 to $78,075
28% $93,701 to $195,450   $133,851 to $216,700   $156,151 to $237,950   $78,076 to $118,975
33% $195,451 to $424,950   $216,701 to $424,950   $237,951 to $424,950   $118,976 to $212,475
35% $424,951 to $426,700   $424,951 to $453,350   $424,951 to $480,050   $212,476 to $240,025
39.6% $426,701
or more
 or more
 or more
 or more

The income ranges and at what level they’ll be taxed are important as we make tax moves and plans related to the coming 2018 tax year. 

And you’ll use these numbers when you file your 2018 tax return in 2019.

However, do not — I repeat, do not — use the above table for filing your 2017 tax return next year.

2017 tax rates and income brackets: To file your 2017 return, which is due by April 16, 2018 (yep, another later deadline since April 15 next year falls on Sunday), you’ll use the 2017 tax rates and income brackets, shown below:

2017 tax rates and income brackets

Tax Rate Single  Head of Household Married Filing Jointly
or Surviving Spouse
Married Filing Separately
10%  Up to $9,325   Up to $13,350   Up to $18,650   Up to $9,325
15% $9,326 to $37,950   $13,351 to $50,800   $18,651 to
  $9,326 to $37,950
25% $37,951 to $91,900   $50,801 to $131,200   $75,901 to $153,100   $37,951 to $76,550
28% $91,901 to $191,650   $131,201 to $212,500   $153,101 to $233,350   $76,551 to $116,675
33% $191,651 to $416,700   $212,501 to $416,700   $233,351 to $416,700   $116,676 to $208,350
35% $416,701 to $418,400   $416,701 to $444,550   $416,701 to $470,700   $208,351 to $235,350
39.6% $418,401
or more
 or more
 or more
 or more

If you just haven’t had enough tax numbers, you also can check out the ol’ blog’s special page lets you look back at tax rates and income brackets through the years.

Enjoy the 2017, 2018 and past year tax rate tables. I’ll be back with more inflation adjusted tax changes for the 2018 tax year in coming posts.

Here’s a preview of what you can expect, with this post listed as #1, to provide a full index of the 2018 inflation and taxes series:

  1. 2017 tax rates and income brackets
  2. Standard deduction amounts, personal exemptions and limitations on itemized deductions and exemptions
  3. Retirement, pension plan contribution limits
  4. Credits and deductions, including adoption costs and assistance, Lifetime Learning Credit, Earned Income Tax Credit, educators’ expenses, interest on education loans and transportation fringe benefits
  5. Medical related tax provisions, including contributions to a flexible spending account, health savings account, eligible long-term care premiums and the Affordable Care Act minimal essential coverage penalty
  6. Estate and gift tax limits, kiddie tax
  7. Alternative Minimum Tax exemption amounts and 2018 Social Security wage base
  8. International worker tax issues (foreign income, housing exclusions)
  9. Penalties, such as for failing to file an income tax return or certain information returns
  10. Standard mileage deduction amounts (issued separately, and later, by the IRS)

As I get these additional inflation related items posted, I’ll put the links in above so this post will serve as an index and directory for the 2018 adjusted amounts.




Tax Preparers Beware: Cybercriminals Are Out to Get You

Cybercriminals are targeting a new group lately: tax preparers. Cybercrime has become serious business in the past few years as new, more sophisticated scams crop up. Cybercriminals have realized – why target one tax payer when you can breach an entire tax office or single tax preparer and hundreds of taxpayer identities?

Be wary of these top tax preparer scams.

Fake Insurance Tax Form Scam

The Insurance Tax Form Scam is the newest of the scams targeting tax preparers. This one is pretty complex. According to the IRS, here’s how the scam works:

“The cybercriminal, impersonating a legitimate cloud-based storage provider, entices a tax professional with a phishing email. The tax professional, thinking they are interacting with the legitimate cloud-based storage provider, provides their email credentials including username and password.”

Once they have access to your account, they steal your client’s email addresses and impersonate you by sending emails to your clients. In the email, they attach a fake IRS insurance form and request that the form be completed and returned.

The subject line and email is usually a variation of the following:

“urgent information”

Dear Life Insurance Policy Owner,

Kindly fill the form attached for your Life insurance or Annuity contract details and fax back to us for processing in order to avoid multiple (sic) tax bill (sic).

E-Services Scam

This phishing scam asks tax preparers to “sign a new e-Services user agreement.” The email will claim to be from the “e-Services Registration” and uses “Important Update about Your e-Services Account” in the subject line. It states that e-Services is rolling out a new user agreement that all users must accept. The tax preparer is directed to a fake website where they are prompted to review and accept the new agreement.

Software Scam

This scam involved impersonating popular software service providers. The subject line is everything from “Software update” to “account shutdown”. The body of the email is generally the same – the scammer wants you to “validate” or “re-authenticate” your login credentials but clicking on their phony link and entering in your username and password.

Scammers are getting very good at mirroring other company’s websites and emails. The email address, at a glance can look legitimate but if you look closer there’s usually something off about it. Maybe it’s there one letter that’s different or maybe the domain name is .net instead of .com.

Once your credentials are stolen, cybercriminals steal your client information to either file fraudulent returns or steal identities.

Taxpayer Impersonation

This scam is a two-step process. First, the tax preparer receives an email seemingly from a taxpayer looking for tax preparation services. Once you respond to the first message, a second email comes with an embedded web address or a PDF attachment that has an embedded web address. You think you’re downloading a potential client’s tax information when in reality your credentials are being stolen.

Be very careful when it comes to unsolicited emails seeking your services. Never respond to or click on a link in an unsolicited email or PDF attachment from an unknown sender.

There are just a few examples of the seemingly endless attempts at stealing taxpayer information. If you suspect a scam, be sure to contact

Cybersecurity Best Practices

Make cybersecurity an everyday practice by following these tips.

  • Be careful of email attachments and web links.
  • Use separate personal and business computers, mobile devices and accounts.
  • Do not connect personal or untrusted storage devices or hardware into computers, mobile devices or networks.
  • Be careful downloading software.
  • Watch out when providing personal or business information.
  • Watch for harmful pop-ups.
  • Use strong passwords.
  • Conduct online business more securely.

For more on cybersecurity in the tax industry, check out our IRS Don’t Take the Bait Series Recap. Also, be sure to follow our Tax Scam Roundup. We add to it as new scams pop-up.




IRS backs off Trump’s Obamacare order, will enforce ACA coverage reporting rule

Medical insurance word cloud graphic by Shawn Campbell via Flickr Creative Commons

Image by Shawn Campbell via Flickr Creative Commons

What’s going on with the Affordable Care Act (ACA)? It depends on where you’re looking for answers.

Federal lawmakers remain in a quandary over how to deal with the ACA, or as it’s known (for now) Obamacare.

The Internal Revenue Service, however, made it clear this week that it plans to follow the health care law’s reporting requirements as long as they are officially on the books.

That’s a reversal of a prior IRS position.

However, given the confusion with the law, both under its namesake president and since Donald J. Trump moved into the Oval Office, the tax agency’s position change isn’t surprising.

Senate deal … or not: First, let’s take a look at what’s up with Obamacare on Capitol Hill.

After both the House and Senate tried and failed to repeal and replace the health care law, Trump took matters into his own hands.

On Oct. 12, he signed an Executive Order that the White House says would make more insurance policies available to more people.

Opponents, however, are concerned that the order would allow consumers to buy short-term health care policies that don’t comply with Obamacare rules demanding coverage for pre-existing conditions.

They also are worried that it will destabilize the ACA by prompting younger and healthier Americans to buy these alternative polices outside the marketplace exchanges.

To protect against that disruption, leaders of the Senate health committee this week (Tuesday, Oct. 17) announced they had reached a bipartisan agreement to shore up the health care law’s insurance subsidies for the next two years.

GOP Sen. Lamar Alexander of Tennessee, chairman of the Senate Health, Education, Labor and Pensions Committee, and the committee’s ranking Democrat Sen. Patty Murray of Washington even got a thumbs-up Tuesday night from Trump for their efforts.

The next morning (Wednesday, Oct. 18), however, the prez slammed the deal on, of course, Twitter saying he couldn’t support bailing out insurance companies that “have made a fortune w/O’Care.”

Trump ocare Oct 18 subsidies tweet

IRS to demand coverage details in 2018: Meanwhile, as the Senators were trying to recover from legislative whiplash, the IRS did some ACA backtracking of its own.

The tax agency’s latest stance is that it’s OK with enforcing all O’Care provisions, which haven’t yet been repealed or replaced, for the 2017 tax year.

That includes taxpayers confirming on their returns next filing season that they had acceptable minimum coverage for the full 2017 tax year. Or that they qualified for an exemption from coverage or paid the tax price, known as the shared responsibility payment.

Most taxpayers will let this IRS know this by checking the box on line 61 of Form 1040, line 38 on Form 1040A or line 11 on Form 1040EZ.  

The IRS didn’t enforce this during the just-completed filing season.

However, if you fail to report your coverage status next year, the IRS won’t process your 2017 tax return.

The IRS spells out the consequences for the 2018 filing season in a notice on its ACA Information Center for Tax Professionals:

For the upcoming 2018 filing season, the IRS‎ will not accept electronically filed tax returns where the taxpayer does not address the health coverage requirements of the Affordable Care Act. The IRS will not accept the electronic tax return until the taxpayer indicates whether they had coverage, had an exemption or will make a shared responsibility payment. In addition, returns filed on paper that do not address the health coverage requirements may be suspended pending the receipt of additional information and any refunds may be delayed.

“This process reflects the requirements of the ACA and the IRS’s obligation to administer the health care law,” noted the announcement.

Reversal of 2017 process: About that health care law obligation, this past filing season the IRS let it slide.

Back in February, in the wake of White House Executive Order 13765 authorizing federal agencies to reduce the financial burden of complying with various Obamacare rules, the IRS decided not to automatically reject tax returns that didn’t confirm the filer (and dependents) had acceptable health care coverage.

For 2018, the IRS has changed its mind. Why? Again, I’ll let the IRS explain:

Taxpayers remain obligated to follow the law and pay what they may owe at the point of filing. The 2018 filing season will be the first time the IRS will not accept tax returns that omit this information. After a review of our process and discussions with the National Taxpayer Advocate, the IRS has determined identifying omissions and requiring taxpayers to provide health coverage information at the point of filing makes it easier for the taxpayer to successfully file a tax return and minimizes related refund delays.

So to avoid refund and processing delays during the upcoming 2018 tax filing season, the IRS says we all must let the tax agency know that we and everyone listed on our tax returns had qualifying insurance coverage (or were exempt or paid the penalty for not being covered).

As for that Jan. 20 Executive Order about easing burdens on taxpayers, the IRS notes that the “legislative provisions of the ACA are still in force until changed by the Congress, and taxpayers remain obligated to follow the law and pay what they may owe.”

That means that if a 1040, 1040A or 1040EZ doesn’t indicate the filer had coverage (or exemptions or paid the shared responsibility payment), the IRS will not consider such returns complete.

And that means no processing of such returns or their associated refunds.

Clear? For now.

You also might find these items of interest:




5 amended tax return filing tips


To err on tax returns is human. To forgive is Xtraordinary, and yes, the misspelling is intentional.

Tax law lets us correct mistakes we make on our 1040s via another form, the 1040X.

Most people file 1040X, which is known as amending your return, because they discovered they didn’t claim a tax break that give them a (or a bigger) tax refund.

Of course, since the Internal Revenue Service is involved, there are some rules and certain steps you must follow.

Here are five key things to keep in mind if you discover you need to re-do a previously filed tax return.

1. Meet the deadline.
To claim a refund based on amended return information, you must file Form 1040X within three years after the date you filed your original return or within two years after the date you paid the tax, whichever is later.

If you filed your original Form 1040 (or 1040A, 1040EZ, 1040NR or 1040NR-EZ) before the April due date, the IRS considers it filed on the April deadline.

2. Many errors mean many X files.
Sometimes finding an error on one tax return leads to the same distressing discovery on other 1040s. In these cases, you must file a separate Form 1040X for each year you are amending.

And you can’t just mail those added corrections in one envelope. Mail each 1040X in a separate envelope.

And yes, I’m talking about old-fashioned envelopes and snail mail.

While the IRS has made much progress in going electronic, you can’t e-file an amended return. Yet. The IRS is working on that, but for now it’s still paper and pen and U.S Postal Service stamps when you’re working on a 1040X.

1040X_Rev January 2017

3. Complete the columns.
Although the 1040X corrects mistakes made on the standard tax filing forms, this X form has a different look.

The key area of focus on an amended return is the form’s page 1 three columns. They cover the information you need to supply, specifically:

  • Column A for the figures you put on your original return. If you previously amended that return or it was changed by the IRS, enter the adjusted amounts.
  • Column C for corrected amounts that prompted you to fill out the amended return form.
  • Column B for the difference between Columns A and C. Any negative amounts should be shown in parentheses. The IRS also wants you to explain each change here in Part III of the 1040X.

That’s right. Instead of going from column A to B to C, Form 1040X has you go from A to C and then to B.

What can I say other than IRS.

This example, adapted from the Form 1040X instructions, looks at taxpayer Sheila, who originally reported $21,000 as her adjusted gross income on her 2015 Form 1040.

Sheila received another Form W-2 for $500 after she filed her return. To account for that added income, she completes line 1 of Form 1040X as follows:

  Col. A Col. B Col. C
Line 1  21,000  500  21,500

Sheila also would report any additional federal income tax withheld that’s shown on the new W-2 on line 12 in column B of her 1040X.

4. Supply back-up information.
As mentioned in #3, the IRS likes details on your 1040X changes. That’s why there’s an area on the back of the form — Part III: Explanation of Changes — to elaborate on why you’re making the changes shown in other parts of the amended return.

Fill our Part III.

Also attach copies of any forms or schedules that are affected by the 1040X changes. This includes any W-2 forms and even 1099s for miscellaneous income if those docs show you had any income tax withheld.

5. Double check your state returns.
If you live in a state with some sort of personal income tax, any changes you make to a prior federal 1040 likely will affect your previous state returns, too.

Check with your state tax department about the process for amending those forms, too.

Amending when it costs you more: Most of the time, folks file a 1040X because they inadvertently cheated themselves out of some tax savings. That’s a wise move.

But you should file a 1040X even if you discover a mistake or oversight that means you owe Uncle Sam more tax money.

Why? Well, the main reason is that you’re an honest person.

The other big reason is money. Really.

Yes, fixing tax errors that short-changed the U.S. Treasury will cost you. Not doing so as soon as you find them could cost you more because the IRS is likely to also eventually discover your underpayment.

When that happens, be it mere months or many years later, the IRS will come after you for the unpaid amount plus those dreaded penalty and interest charges that have been accruing.

If you catch and fix the unpaid tax mistake first, your Form 1040X filing will stop those added charges as soon as the IRS gets the corrected information.

You also might find these items of interest:




Made a tax-filing mistake? Fix it with 1040X

There’s an old tax myth that filing an amended tax return will get you audited.

Erasing mistakes

Not true.

In fact, failing to correct an error you made on your original tax return is more likely to cause you more tax trouble. When the Internal Revenue Service discovers the mistake, and the agency likely eventually will, you’ll owe the tax due and penalties and interest.

And if you fail to claim a tax break on an amended return that you overlooked when you first filed, then you’re the one cheating yourself out of tax savings.

An effort worth making: I know, dealing with the IRS more than you absolutely have to is a pain. But filing an ed return generally is a good idea, whether it gets you missed tax savings or causes you to owe a bit more than you thought.

The key is getting your tax house in proper order for better or worse. That will keep the IRS out of your life long-term.

It’s not hard to fix an error or claim an overlooked tax break. Details are in the latest Weekly Tax Tip that focuses on how to fix tax mistakes with amended return.

Check out the full story for specifics. In the meantime, here are four highlights.

1. Meet the deadline: To claim a refund based on amended return information, you must file Form 1040X within three years after the date you filed your original return or within 2 years after the date you paid the tax, whichever is later.

If you filed your original Form 1040 (or 1040A or 1040EZ) before the April due date, the IRS considers it filed on the April deadline.

2. Make old-fashioned corrections: File a separate Form 1040X for each tax year you are amending. And mail each form in a separate envelope.

Yes, I said mail. You can’t file an amended return electronically, yet. The IRS is working on changing that.

3. Complete the columns: The 1040X has three columns of info you’ll need to supply. They are —

  • Column A is where you enter the figures you put on your original return.
  • Column C shows the corrected figures, that is, the amounts that are why you are filing the 1040X.
  • Column B is the difference between Columns A and C.

Form 1040X excerpt

Yes, Form 1040X is a perfect example of why doing your taxes drives you crazy. Instead of A to B to C, on the amended return you go from A to C and then to B.

4. Supply back-up info: There’s also an area on the back of the form to explain the specific changes you are making and the reason for each change. Fill it out.

And attach copies of any forms or schedules that are affected by the 1040X changes. This includes any W-2 forms and even 1099s for miscellaneous income if those docs show you had any income tax withheld.

Get ready to wait: If your 1040X will get you some additional refund money, don’t go spending it just yet.

The IRS says that it can take up to three weeks from the date you mailed your 1040X for the document’s information to show up in the agency’s system. Remember, it has to be delivered, opened and then the data entered by an IRS employee into the tax collector’s main computer.

Overall, warns the IRS, it can take the agency up to 16 weeks for your amended filing to be processed.

Don’t call us … : An anxious taxpayer’s natural inclination is to check on his or her amended filing. You can do that, but put your phone down.

“Unfortunately, calling us will not help us process your return more quickly,” says the IRS.

Instead, use the agency’s online tool Where’s My Amended Refund? This option will give you the status of your current year amended return, as well as up to three prior years of 1040X filings.

If you do insist on calling, the IRS wants you to use its dedicated amended return toll-free hotline at 866-464-2050.

You can start checking on the status of your 1040X filing, either by phone or online, three weeks after you mail your amended return.

I know it’s a hassle. But filing a 1040X could get you some more tax refund money.

And even if it doesn’t, it’s always better to make sure you are in good standing with Uncle Sam’s tax collector.

You also might find these items of interest:


Summary and Observations on Tax Reform Framework

On 9/27/17, the Big 6 released their tax reform framework to guide the drafting of tax reform legislation (see my 9/30 post for links). Here is my summary and observations:

9-page framework
Lots of details are missing such as where rate brackets start and end, rate on investment income, and what “loopholes” will be closed.
Standard deduction of $24K for MFJ and $12K for single
Will the head-of-household filing status continue?
Personal and dependency exemptions are removed.
The stated deductions are almost double the current amounts.
Individual rates: 12%, 25% and 35% and perhaps a rate above that for high income individuals for progressivity.
Today, lowest bracket is 10% and highest is 39.6%.
Will there be a special rate for investment income, including today’s 0% rate that applies to some capital gains?
Where will these brackets start and end?
Child Tax Credit – phase-out limits increased; first $1K is refundable.
Non-refundable credit of $500 for non-child dependents.
Today, CTC only applies to children under age 17 while dependency might go up to age 23 (full-time student).
If all workers are to get a higher paycheck and today about 45% of individuals pay no income tax due to low income, even if they get a higher refundable child credit, it won’t affect their paycheck.
Only itemized deduction for home ownership and charitable contributions remain.
Repeal of state tax deduction can result in tax increase for many taxpayers.
Repeal of medical expense and casualty loss might adversely taxpayer’s ability to pay.
Preferences “that encourage work, higher education and retirement security” are retained.
No details provided. Is the preference that encourages work the EITC? Will education provisions and retirement plan options be streamlined and simplified?
Individual and corporate AMT repealed.
What happens to any minimum tax credit a taxpayer is carrying forward at date of enactment?
Repeal of other provisions.
What might this include?
Repeals estate and GST taxes.
What happens to basis of assets at date of death?
Will the gift tax remain?
Corporate rate is 20%.
Per the framework, the average corporate rate among industrialized countries is 22.5%.
The rate for “business income of small and family-owned businesses is 25%. There will be measures to “prevent recharacterization of personal income into business income.
Assuming there are rate cuts, less than 5% of owners would possibly even be in a rate above 25%. There are still payroll tax considerations and make it important that all non-C corporation owners distinguish services income from return on capital invested in the business.
Double taxation of corporate income might be addressed.
Senator Hatch has discussed corporate integration via a dividends paid deduction approach with withholding.
Expensing of new investments in depreciable assets other than structures, made after 9/27/17 will be expensed, at least for the first five years.
This is the only mention of a date in the framework. Will it include expensing of intangibles as well? New or also used property? Why five years only? What happens after that? The five years is likely due to the need to keep the bill revenue neutral by year 11 due to the budget reconciliation. Will temporary rather than permanent expensing adversely affect the economic growth projections? The Tax Foundation says yes (Pomerleau, “Economic and Budgetary Impact of Temporary Expensing,” 10/4/17).
Net interest expense of C corporations is “partially limited” and a similar treatment for other entities will be considered.
There are likely two rationales for limiting the interest expense deductions: (1) a revenue raiser, and (2) if assets are expensed and debt-financed, the effective tax rate is very low, perhaps even zero or negative; thus warranting a limitation on the interest expense.
§199 manufacturing deduction will be repealed.
No surprise here as this measure is really just a rate cut for many taxpayers, but added complexity.
Various unnamed tax preferences will be repealed or cut back. Only the research and low-income housing credits will remain.
The rationale for keeping the research credit is likely because other countries with a lower tax rate also have research incentives. Also, this credit exists not only for its incentive effect, but also to address the spillover effects when a company engages in R&D but others benefit from it as well.
Changes will be made to tax rules for specific industries to “better reflect economic reality” and reduce tax avoidance.
No examples are provided.
For businesses, worldwide taxation will be replaced with territorial with a 100% exemption for dividends from foreign subs (if the U.S. parent owns at least 10%). Transition rules will include deemed repatriation with a rate lower for illiquid assets than for cash and cash equivalents. Payment will be spread over several years. To prevent shifting certain income to tax havens, there will be a reduced tax rate on the foreign profits of U.S. multi-national companies
Many details are missing here including the deemed repatriation tax rate, the period for paying the tax, and what other rules will need to change due to the shift to a worldwide tax system.

The plan also states President Trump’s President Trump’s Four Principles of Tax Reform:

1.      Simple, fair, easy to understand
2.      Give American works a pay raise.
3.      Make America a jobs market of the world
4.      Bring back trillions of dollars of unrepatriated earnings.

What do you think?