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Do You Need To Amend Or Correct Your Income Tax Return?

In moving to automate the ability to electronically file more types of income taxes, the IRS has recently announced that corrections or amendments to Form 1040-NR, U.S. Nonresident Alien Income Tax Return and Forms 1040-SS, U.S. Self-Employment Tax Return (Including the Additional Child Tax Credit for Bona Fide Residents of Puerto Rico) and Forms 1040-PR, Self-Employment Tax Return – Puerto Rico can now be done electronically. 

In addition, a new electronic checkbox has been added for Forms 1040/1040-SR, 1040-NR and 1040-SS/1040-PR to indicate that a superseded return is being filed electronically. A superseded return is one that is filed after the originally filed return but submitted before the due date, including extensions.

Also, returns can be amended to change the filing status or to add a dependent who was previously claimed on another return.

Forms 1040, 1040-NR and 1040-SR can still be amended electronically for tax years 2019, 2020 and 2021 along with corrected Forms 1040-SS and Form 1040-PR for tax year 2021.

Fear not, as taxpayers still have the option to submit a paper version of the Form 1040-X and should follow the instructions for preparing and submitting the paper form.

Are You Separating From Or Divorcing Your Spouse (Or Thinking About It)?

There are special considerations for people who are in this unfortunate situation.  Not only is their relationship changed, but the tax status is affected as well. 

Important things to consider or do:

  • Update your withholding with your employer by filing a new Form W-4. 
  • If you are receiving or negotiating spousal support (alimony or other payments from your spouse), this will determine the income taxability of the same.  There may be a need to increase your withholding or to begin making estimated payments.  If you need guidance on this, check with your tax preparer or visit irs.gov and use the tax withholding estimator tool. 
  • If you are the paying spouse, there may be deductions allowed for payments described above.  Here again, check with your tax preparer or visit irs.gov and search the type of payment you are making to help determine deductibility. 
  • The date of such an arrangement for payments by either the paying spouse or the receiving spouse can have an impact on whether the payments are taxable or deductible.
  • If there are children in the relationship, determine who will claim a dependent child.  Both parents are not entitled to claim the same child. 
  • Child support payments are usually not reportable, nor are they a deduction.
  • Have property transfers taken place as a result of the separation/divorce?  These transfers could impact income taxes.

The above list is just a few of the considerations to be made.  However, one of the most important considerations is to determine each spouse’s FILING STATUS.  Just because two people are no longer considering themselves as being married does not justify them to select SINGLE as their filing status.  In the eyes of the IRS, the only two ways two people who have filed a Married Filing Joint return in the past to change their filing status to Single is by way of the death of one of the spouses or by a Court decree or separate agreement before the Court.  If divorcing couples are waiting for a decree of divorce from the Court and December 31 passes, they are still considered legally married in the eyes of the taxing authorities. 

The What Is My Filing Status tool on IRS.gov can help to determine what your filing status is.  Keep in mind that by selecting the filing status of:

  • Married filing jointly – the combined income of both the husband and the wife as well as the combined allowable expenses are reported. 
  • Married filing separately – each spouse files a separate return reporting their own income and deductions.  Bear in mind that both spouses must use the same method of deductions – either standard or itemized.
  • Head of household may provide for separated people if certain qualifications are met with regard to the estranged spouse not living in the home during the last six months of the year, payment of the cost of keeping up the home, and if the home was considered the main home of the children

Many details can impact your income taxes, so do your research or work with your tax preparer for the knowledge needed for your particular situation.

Scheduled 2025 Tax Changes

The 2017 Tax Cuts and Jobs Act are set to expire in 2025 and it is not too early to start thinking about those changes and how the expiration of the same may affect you. 

Many Americans have become complacent with the federal tax exclusions being in the $12 million range this year and think that they don’t have to worry about federal estate taxes.  But, they may be failing to keep in mind that the federal tax exclusion is set to sunset back to the amount of $5,450,000 (the 2017 amount) for decedents dying on or after January 1, 2026.  That’s quite a difference and may impact many more individuals.  All assets owned by the decedent either individually or jointly are considered in determining federal estate tax liability.  With life insurance, retirement account and homes, it is not difficult to exceed that amount. 

Further, if you are fortunate to have built significant wealth that could result in estate taxes, the gifting of assets could be a tax planning strategy to consider. 

Estate planning is very individualized and can be worth the significant tax savings which could be had.  However, effective estate planning does not happen overnight.  There are meetings with your team – financial, legal, accountant – to gather information and to strategize the best plan for you.  Then there is the drafting of documents and review of the same before they are signed.  And lastly, it may be necessary to change beneficiary designations, retitle assets, reallocate assets, etc. all of which take time.  This last step is often forgotten about and while the best plan for you that was put together by your team was with the goal of saving taxes, without the action needed in the last step, the plan will not be effective. 

Why leave your hard-earned or inherited assets to be unnecessarily taxed.  Act now.  Tax laws can be changed anytime and while we know what is set to change for 2026, one does not have a crystal ball to know what changes could happen prior to that date. 

Income Tax Return for a Deceased Taxpayer

Are you aware that a final Form 1040 should be filed for a deceased taxpayer? 

Usually, the surviving spouse or the estate representative files a final individual income tax return for the deceased taxpayer. 

If there is a surviving spouse, the return is filed with the same filing status as prior returns were filed.  The surviving spouse benefits from the full exemption/deduction of the deceased spouse regardless of when during the year the death occurred.  A notation is made on the return of the date of death.

If there is no surviving spouse, the estate representative files a return for the time the decedent was alive during the tax year.  If the decedent died on June 5, for example, all income received by the decedent from January 1 to June 5 should be reported on the final individual income tax return.  All income earned after June 5 should be reported on a fiduciary income tax return – Form 1041. 

If the decedent is entitled to a refund of an overpayment of tax, Form 1310 must be completed and filed by the estate representative.  However, if the decedent is survived by a spouse, this form may not be required. 

In addition to filing a decedent’s final Form 1040, IRS Form 56 – Notice Concerning Fiduciary Relationship should be filed.  The filing of this Form notifies the IRS of the passing of the taxpayer and states the information for the party who is handling the affairs of the decedent.  If this Form is not filed, there is no defense if the IRS should mail any type of notice to the deceased taxpayer which is not received and therefore the required action not taken. 

The death of a taxpayer does not grant any special filing or payment deadlines.  If it is determined that the final tax return cannot be completed and filed by the income tax deadline, then an extension can be requested.  Please note that this extension is an extension to file but not an extension of time to pay any taxes due. 

Year-Round Tax Planning

Tax season is pretty much history unless your returns are on extension.  For most people, once our tax returns are filed, we tend to not give them another thought until the beginning of the next year. 

To minimize your tax liability, you need to think about taxes all year round.  Thinking about deductions and credits will help in this regard.  Waiting until you are ready to prepare and file your taxes could result in your not taking full advantage of allowable credits and deductions. 

Here are some things to consider:

  • Standard or itemized deductions – which is better?  Well, it depends upon your situation.  And, you may not know which is most beneficial until your taxes are prepared.  So, it is helpful to accumulate information throughout the year for:
    • Medical expenses – doctors, dentists, eyeglasses/contacts, hearing aids, physical therapy, medications, medical devices, etc.
    • Medical insurance premiums include long-term care premiums
    • Property taxes
    • Charitable contributions both cash and in kind.  If you donate goods to a charity, keep the receipt and a description of what you donated.  (During the past couple of years, a credit for those taking the standard deduction has been allowed in a limited amount.  However, you are required to have receipts to support even those deductions.)
    • Mortgage interest
  • Credits don’t just include the amount of taxes you have paid in throughout the year.  There are credits for:
    • Child care
    • Elderly care
    • Learning
    • Child tax
    • Earned income tax credit
    • Recovery rebate credit

These credits and deductions can reduce taxes owed or boost the amount of your refund.  Some of the tax credits are refundable, which means that if you are eligible, you can get money refunded even if you don’t owe any taxes. 

Remember, to properly claim these credits and deductions, you MUST have records to show your eligibility.  So, don’t just think about income taxes during tax season. Keep them in mind all year long. 

Owe Money to the IRS?  Reduce Your Debt for Pennies on the Dollar

Who hasn’t seen these ads on television claiming that if you owe taxes, the advertiser can settle your debt for pennies on the dollar. Do you believe these ads to be valid?

Every year, the IRS publishes their DIRTY DOZEN list which is basically a list of the top 12 scams with regard to taxes.  This year, in addition to the usual and common ones of IRS impersonators calling you demanding money, identity theft, etc., the IRS has added what they are calling “offer in compromise mills.” 

These “mills” are the advertisers who claim they can reduce your debt with the IRS.  They are akin to the “ambulance chasers” often seen in accident cases.  Are their claims valid?  As to the IRS claims, not very likely. 

So, what do you do if you owe the IRS and can’t pay your obligation?  The best option is to contact the IRS and work directly with them to set up a payment plan.  Contrary to what many people think about the IRS, they are human and will work with you.  Yes, the IRS may use a method called “offer in compromise” but it will be a legitimate offer and you won’t be charged a fee as you would pay these “offer in compromise mills.”  Another option is to consult a tax professional who can provide guidance on how it would be best to proceed. 

IRS.gov has a tool called Offer in Compromise Pre-Qualifier Tool which you can use to see if you qualify for entering into an offer in compromise.  But, it is suggested that even if you don’t pre-qualify, rather than doing nothing, you are better off to contact the IRS or engage the services of a tax professional to assist in helping to get going in the right direction toward resolving your tax liability.  

In a similar fashion, there are ads that are enticing to get you a bigger refund.  These ads are not always trustworthy and should you use one of these preparers and you magically get a refund larger than what you may have expected, recognize that a red flag may be present.  Could your return have invented income to qualify you for tax credits, claim fake deductions to increase the amount of refund or direct a refund into a bank account other than your own?  These could result in an audit of your return and a return of a portion or all of the refund you received with added penalties and interest. 

Be realistic with claims that seem too good to be true.  Do your homework.  And by all means, do not be afraid to call the IRS.  They are here to help you.  They aren’t the bad guys.

Were You The Beneficiary Of An IRA Owned By A Decedent?

If you are/were the beneficiary of an IRA or a qualified defined contribution plan participant that was owned by someone that has died, there are new rules and regulations that must be kept in mind.  Gone are the days that you could stretch out the distribution for an extended period of time – now, the distributions must be completed in full within ten years in most cases.  And, all or a portion of those distributions are likely be income taxable. 

So, how can you maximize the value of the distributions?  It makes sense that the deferral of income and/or capital gains can maximize value.  However, ordinary income tax rates apply to taxable distributions (other than Roth IRAs) and favorable capital gains tax rates are available for distributions from taxable retirement accounts, including required minimum distributions.

What do you need to keep in mind? 

  • If the owner of the asset dies before becoming subject to required minimum distributions, the SECURE Act now requires that the designated beneficiary take distribution of the full amount by December 31 of the year containing the tenth anniversary of the owner’s death.  However, if the beneficiary can comply with pre-SECURE rules, there may be an exception to receive annual distributions based on the beneficiary’s life expectancy. 
  • Eligible Designated Beneficiaries include the owner’s surviving spouse, certain children depending upon age, a disabled individual or certain chronically ill individuals.
  • FYI – if there is no designated beneficiary, the entire account must be distributed and subject to income taxes by the end of the calendar year containing the fifth anniversary of the owner’s date of death if the owner had reached the required distribution date.

Remember that Roth IRAs are not included as the income tax has already been paid on these accounts. 

If you are charitably inclined, you may want to consider designating a charity as beneficiary since there would be no income tax consequences to a charity. 

It is advisable that you speak with a financial advisor or an attorney familiar with tax laws to help determine what the best option is for you and your individual situation.  The worst action you can take is to be reactive and withdraw the entire account before exploring your options to minimize your tax consequences. 

Some Reminders If You Are Selling Your Home

Summertime and the moving trucks are busy.  If you are selling your home, here are some important reminders:

  • Some or all of your gain may be excludable from income tax.  Have you owned your home as your primary residence for five years?  Have you lived there for at least two years?  If the answer is yes to both of these questions, you may be able to exclude up to $250,000 of any gain if you are single, and if you file a joint return with your spouse, you may be able to exclude up to $500,000 of gain. 
  • If you experience a loss when selling your main home – you sold it for less than you paid for it – unfortunately, this loss is not deductible. 
  • If you own more than one home, you are only able to exclude the gain on the sale of your main home.  Any gains on homes other than your primary residence are not excludable and are subject to tax on any gain.
  • You must report forgiven or canceled debt as income on your tax return.  This is if you had a mortgage workout, a foreclosure or other canceled mortgage debt. 
  • There are exceptions to these rules for certain persons, such as someone with a disability, military, intelligence community and Peace Corps workers.  Check with a tax advisor to determine if you are eligible.

Once again, I encourage you to visit irs.gov for additional information to assist you when selling your home.  Worksheets are included in Publication 523 – Selling Your Home which can help with determining the amount, and your eligibility of excluding gain on the sale.

Happy packing and moving – and enjoy your new home.

Taxpayers Should Open and Carefully Read Any Mail from the IRS

The IRS mails letters or notices to taxpayers for a variety of reasons including:

• They have a balance due.
• They are due a larger or smaller refund.
• The agency has a question about their tax return.
• They need to verify identity.
• The agency needs additional information.
• The agency changed their tax return.

If a taxpayer receives an IRS letter or notice, they should:

• Not ignore it. Most IRS letters and notices are about federal tax returns or tax accounts. The notice or letter will explain the reason for the contact and gives instructions on what to do.

• Not panic. The IRS and its authorized private collection agencies generally contact taxpayers by mail. Most of the time, all the taxpayer needs to do is read the letter carefully and take the appropriate action.

• Read the notice carefully and completely. If the IRS changed the tax return, the taxpayer should compare the information provided in the notice or letter with the information in their original return. In general, there is no need to contact the IRS if the taxpayer agrees with the notice.

• Respond timely. If the notice or letter requires a response by a specific date, taxpayers should reply in a timely manner to:

  • avoid delays in processing their tax return.
  • minimize additional interest and penalty charges.
  • preserve their appeal rights if they don’t agree.

• Pay amount due. Taxpayers should pay as much as they can, even if they can’t pay the full amount. People can pay online or apply online for a payment agreement, including installment agreements, or an Offer in Compromise.

• Keep a copy of the notice or letter. It’s important that taxpayers keep a copy of all notices or letters with other tax records. They may need these documents later.

• Remember, there is usually no need to call the IRS. If a taxpayer must contact the IRS by phone, they should use the number in the upper right-hand corner of the notice. The taxpayer should have a copy of their tax return and letter when calling. Typically, taxpayers only need to contact the agency if they don’t agree with the information, if the IRS requests additional information, or if the taxpayer has a balance due. Taxpayers can also write to the agency at the address on the notice or letter. Taxpayer replies are worked on a first-come, first-served basis and will be processed based on the date the IRS receives it.

Are You Looking For Your Federal Tax Refund?

You have filed your taxes and are expecting a refund on your Federal Return.  How can you check on the status of your refund?  Visit the irs.gov website and use the Where’s My Refund tool.  Your return should be available within 24 hours after the IRS has acknowledged receipt.  You will also be able to receive a personalized refund date after the return is processed and a refund is approved.  Access to the Where’s My Refund? tool is also available on the IRS2Go app.

If you want to use the tool, you will need your Social Security number or Individual Taxpayer Identification number, your filing status and the exact amount of the refund claimed on your return. 

When using the tool, you can determine the progress of your return processing in three phases:  return received; refund approved; refund sent. The refund approved indicates that the refund is being prepared for direct deposit or by check to be mailed.

The tool is updated once a day – usually overnight. 

So, if you are lucky enough to be getting a refund, you can check once a day to determine the status.  Please don’t call the IRS about expediting your refund.  There are many callers with substantive issues and the people in the call centers are not able to provide any information that you don’t have access to. Nor are they able to speed up the refund processing. 

If you are looking for more information, there is a Refund FAQ section on irs.gov. 

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