If you haven't already begun, now's the time to prepare for filing your 2014 tax returns.
You should know about any pitfalls that could cause mistakes on your tax returns -- beyond the well-worn list of obvious gaffes like missing Social Security numbers, math errors, failing to sign your return, and so on. By now, everyone should be aware of those.
Here are a few items in the "what's new" category that can trip you up this year.
Claiming the health insurance premium tax credit
If you're one of the almost 6 million individuals who received a government subsidy toward the health insurance you bought through the federal health care exchange or your state's exchange, you should be receiving a new tax form, called a 1095-A.
This form should include the total monthly health insurance premiums you paid, the monthly tax credits or subsidies applied toward those premiums and the premiums for the second-lowest-cost Silver Plan.
You're supposed to use the information on this form to complete another new form, the 8962 Premium Tax Credit. You must complete this one to claim the remaining amount of any unapplied subsidies as a tax credit on your 2014 tax return.
Sounds confusing? It is. That's why the big tax-prep firms, such as H&R Block (HRB), are getting their preparers ready to handle it. And it's one of the reasons more taxpayers will be turning to a professional this year to prepare their returns.
Reporting your employer-paid or self-purchased health insurance
If you did not purchase health insurance from an exchange, but you were covered by a qualifying health insurance plan (either through your employer or one that you purchased on your own), you'll need to pay careful attention to a new line on page two of the Form 1040 labeled Line 61, Health Care; individual responsibility.
If you skip this line and make no entry, expect a notice from the IRS saying you own an additional penalty tax of up to $95 for a single adult or up to $285 for a family. Read this new IRS publication to learn more about how this affects your tax return. For most people, the fix is simple enough: Check the box indicating you had full-year coverage.
But some taxpayers who may not have been covered but who qualify for an exemption from some or all of this additional tax may have to complete and file Form 8965, Health Coverage Exemptions. And if you did not qualify for a coverage exemption, then see the instructions for Line 61 and Form 8965 about calculating the additional tax you'll owe. Again, to avoid getting tripped up here, it may be best to see a tax prep pro.
Claiming the home office deduction
If you're self-employed and performed at least some of your work from a home office, you can claim a deduction for expenses you incur in connection with the business use of your residence, whether you own or rent.
In the past, the IRS put this deduction on its list of audit triggers, so many filers shied away from claiming it. But last year for 2013 returns, the IRS introduced a Simplified Option for Home Office Deduction. This option allows anyone who meets the criteria for claiming a home office deduction to do so via a flat deduction of $5 per square foot on a maximum of 300 square feet, for a total deduction of up to $1,500.
In addition to being much easier to calculate, the benefits include being allowed to claim the full amount of home-related deductions (for taxes and mortgage interest) on Schedule A, and no depreciation deduction or recapture of depreciation is required for the years you use this option. So, if you can use the Simplified Option, you'll be sure to avoid making the mistake of miscalculating the home office deduction.
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