If you have filed your tax return and noticed that you made an error during the process, you can file a follow-up or amended tax return to make the correction. An amended tax return offers taxpayers the option to make changes after filing their original return. The changes may include income that was not declared, additional deductions that were not used, extra expenses that were not counted, 1040X, 1120X, 1065X and so forth.
This means that the changes you make can be to your advantage, such as taking advantage of deductions that you may have overlooked. Or, they can be to add income that you did not remember to put in, thus avoiding stiff fines from the IRS.
When You Need to File an Amended Return
Not every mistake or situation needs filing an amended tax return. There are certain circumstances when you do not require doing anything. Having an understanding of that will save you considerable time and effort when the IRS can make the changes themselves.
This is true with basic mistakes in math. If you made a mathematical error on your tax returns, you do not necessarily need to file an amended return. The IRS itself will make the changes or inform you if there is missing information when something does not add up properly. So, if you make a mistake, yet all the information is present, then the IRS will do the changes for you.
However, if the errors are based on information that was not filed, then you will need to file an amended tax return, 1040X, 1120X, and 1065 X. Such cases include, but are not restricted to the following;
·Reporting incorrect income
·Selecting the wrong number of dependents
·Not including tax deductions or tax credits
·Using the wrong filing status when submitting your form
·Receiving new information after filing your taxes
One example of collecting new information that might be avoided is when you get 1099 forms from investment accounts. You’ll want to wait a few weeks after receiving the initial 1099’s as corrected versions may come out eventually. You can save yourself from considerable issues if you wait until the corrected 1099 forms have been sent to you.
How to File an Amended Return
Once you recognize that you need to file an amended tax return, you will most likely need to use the 1040X form which is made just for that purpose. This form will allow you to make corrections on most 1040 forms for individual taxpayers, such as the A, EZ, NR, and NR EZ. You should consult a tax professional, EA, CPA, lawyer.
Once you have the form, all you need to do is fill out the three columns that are present.
Column A: Amount stated on original return
Column B: Difference between Column A and Column C
Column C: Corrected amounts you are now including
On the back of the form, you should explain why the changes are being made and include all appropriate forms, such as the 1099 or W-2. Once completed, the 1040X form will have to be mailed as it does not qualify for electronic submission.
If you made a mistake on the 1040X form or you receive additional information after you have filed the correction, you will need to file yet another 1040X form to correct the previous one. This is because you cannot cancel the actual filing of the 1040X; you can only amend it again. Consult an experienced tax professional, EA, CPA, lawyer.
Timing Your Amended Return
You may wonder when it will be appropriate to file your 1040X corrections. That will be based on whether you will receive an additional refund or have to pay more in taxes. If you have to pay more, then you should send it in immediately to avoid late fees and penalties. However, if the corrections allow for a larger refund, then you should wait until your original refund has been sent to you.
You have three years from the date you filed your original return to submit the corrections. Keep in mind that if you filed early, the IRS considers April 15th being the filing date. If you filed after April 15th because you requested an extension, then the IRS will consider the date they received your original return to be the beginning of the three-year period.
Possible Penalties
An error will not cost you anything with the IRS. However, if correcting your mistake means paying more taxes, you will need to do so quickly. Keep in mind that you might face interest charges and penalties for paying late taxes. This means that filing an amended return does not cause any charges or penalties to be incurred. It’s only when you must pay more in taxes due to the amended return that it comes into play.
If you had filed for a credit or refund that was then lowered on your amended return, you will be penalized for the additional amount you received from 20% up to the total amount. It’s possible to avoid the penalty if you can demonstrate reasonable cause for making that claim which resulted in the overpayment.
On the other hand, if the IRS believes that you filed a frivolous return in the first place, they can fine you a penalty of up to $5,000 in addition to other penalties. In most cases, the penalty is one-half of one percent of the unpaid amount for every month that the tax has yet to be paid. So, the longer you wait, the more you will have to pay. Of course, if the amended return means you get a bigger refund, then there is no penalty.
In summary, the IRS is pretty good at detecting disparities on your tax returns from year to year, so the sooner you make the correction, especially if it involves unpaid taxes, the better.
While filing for an amended tax return may seem troublesome, it is generally preferable if you owe additional taxes to go ahead and send in the information quickly. The IRS is far more forgiving if you voluntarily cooperate and work with them compared to the IRS having to chase you down. Always consult an experienced tax professional, EA, CPA, lawyer or a Tax Attorney.
Correcting Tax Returns: How the IRS Offers Aid