Most taxpayers who suddenly realize there’s been a rather glaring mistake of omission or commission on an income tax return probably feel a gut-wrenching klong. But mistakes can be fixed, and sometimes there are reasons other than slip-ups to amend returns.
Reasons for Amended Tax Returns
There are numerous circumstances that trigger amendments. A few typical ones are:
- Failure to claim the Earned Income Credit or Child Tax Credit
- Finding a forgotten W-2 or 1099
- Overlooking a substantial itemized deduction on a Schedule A
- Realizing a different filing status could have been more beneficial
- Claiming deductions or credits that were not legitimate
- Entering figures for income, deductions or other tax data incorrectly in the return
- Finding out about a retroactive change in the tax law that could be beneficial
The various consequences could mean a bigger refund, a smaller tax bill or worst of all, an increased tax bill. But it could also mean nothing will change from a tax dollar perspective one way or the other. Doing the calculations on the IRS 1040X will ferret out the truth of the situation.
It’s Best to be Proactive With Federal Income Tax Return Amendments
It is usually a good idea to amend any federal income tax return as soon as possible for a number of reasons, among them that an anticipated refund may be delayed or the IRS may send some undesirable notices about interest charges and tax penalties. Any tax documents a taxpayer receives from banks, employers, stock brokers, etc., are also reported to the IRS, and it does watch for discrepancies.
Amendment Tax Form 1040X
The IRS Form 1040X, the “Amended U.S. Individual Income Tax Return,” has the taxpayer explain the changes to the original return and calculate any differences in the amount to be refunded or owed. If the taxpayer owes, the full amount of tax due on shown on the 1040X must be paid, even if the original return showed a refund. The refund will be sent separately. If the taxpayer cannot afford to pay the bill, he or she can request making installment payments.
A Few IRS Form Amendment 1040X Facts and Caveats
- An amended return filed before the due date or any extension of the original return, is effectively a substitute for the original, and no interest or penalties will be incurred based on the original filed return.
- To get a credit or refund, the taxpayer generally must file an amended return by whichever is the later of these two dates: three years after the original return was filed or two years after any taxes due were paid. Those dates can be suspended if the taxpayer was “financially disabled,” i.e., not able to handle financial affairs because of physical or mental impairment, and no one was empowered to act in the taxpayer’s behalf. The impairment will require documentation.
- The one filing status that cannot be changed is going from Married Filing Jointly (MFJ) to Married Filing Separately (MFS) after the due date of the original return. In the case of a deceased spouse however, an executor may be able to make that change.
- A taxpayer may not make a retroactive change to his or her accounting method, even if the tax year is still open.
- Amended returns cannot be filed electronically, which slows the process down. The 1040X needs to be mailed with any required accompanying documents to the IRS office serving the taxpayer’s area. But if the 1040X is being sent in response to an IRS notice, it needs to be mailed to the address on the notice.
Paid Tax Preparers and Income Tax Amendments
If the taxpayer had a tax preparer do the return, the preparer should make good on amending the return if the mistake was on the preparer’s part (e.g., if information was entered incorrectly). If the taxpayer was remiss in providing any necessary information, or gave the wrong information needed for the tax return, the taxpayer is liable for paying amendment costs. If any amended return results in a bigger tax bill, the tax payer is liable for what is owed to the IRS, regardless of who is at fault.
State Income Tax Implications
Taxpayers who file amended federal returns should check to see if their state tax liability is affected.
Where to Get Help
This is just a bird’s eye view of the 1040X amendment process. Like most facets of the federal income tax law, amended taxes also have many rules, exceptions and qualifiers. Tax professionals and the IRS website are the best sources for detailed information. The IRS site can be easily be visited for copies of the 1040X and instructions on how to fill it out.
Sources:
J. K. Lasser Institute. Your Income Tax 2010 New York: John Wiley and Sons, Inc., 2009.
Tax Partners and Professionals of Ernst & Young LLP. The Ernst and Young Tax Guide 2007, 22nd Ed., Peter Bernstein, Editor. New York: CDS Books, 2006.
Thompson Reuters. Quickfinder Handbook: Form 1040 2008 Tax Year. Ft. Worth, Texas: Thompson Reuters, 2008.
Barbara Jezior - My career paths include Research Psychologist, Technical Writer/Editor, Food Expert, and Professional Tax Preparer.
