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2007 Tax Guide    
  A tax tip a day will help keep the IRS away. You'll find them here, along with good advice on filing your return.
     
See Bankrate's 2008 Tax Guide for the most up-to-date tax information.
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TAX TIP #56
Made a tax mistake? File an amended return

As you were working on this year's taxes, you ran across an error on an old return. Rather than ignore it, it's probably to your advantage to file an amended return.

In this tax tip:
 
 

The Internal Revenue Service usually corrects math errors and simply lets you know of any changes. In these instances, you don't need to amend your return. However, do file an amended return if you discover (before the IRS does) that any of the following were reported incorrectly:

  • Your filing status
  • Your total income
  • Your dependents
  • Your deductions or credits

By sending the IRS a corrected tax return in these cases, you might be able to get more money back. Or, if the mistake you made wasn't so favorable, you should own up to that, too. Either way, it's not a difficult process.

Filing another form
Use Form 1040X, Amended U.S. Individual Income Tax Return, to correct a previously filed Form 1040, 1040A or 1040EZ. It doesn't matter if you originally filed a paper return or sent it electronically. However, your amended return must be done on paper. The IRS e-file system does not yet accept electronic 1040X forms.

Basically, the 1040X asks for your corrected data, the reason for the changes and your originally reported information. If the changes involve another schedule or form, attach it to the 1040X.

A common reason to file an amended return is to correct your filing status. The 1040X gives you the opportunity to make changes here if you mistakenly chose a filing status that cheated you out of some tax dollars. For example, a single parent would get a larger standard deduction by filing as head of household rather than as a single filer. That change can be made on the 1040X.

Couples who filed separately can also change a return to married filing jointly so they can get some tax breaks not allowed to separate filers. You can't, however, do the reverse. Changing from joint to separate filing after a return's deadline is past is not allowed.

And there's also a section for adding or subtracting personal exemptions in case there was some confusion as to whether you properly counted someone as a dependent.

When to file
You can file an amended return within three years of your original filing date. This includes any filing extensions.

To get this three-year grace period, however, you must have paid all your tax due with the return in question. If you didn't pay in full then, you only have two years from the time you finally paid your tax bill to make corrections.

If you find a mistake that could get you a bigger refund soon after you've filed, wait until you receive your original refund before sending the IRS any more paperwork. You need to let the original document work its way through the system to avoid any confusion about your tax account.

You can, however, go ahead and cash your original refund while you wait for the additional payment from your amended filing. The IRS will simply subtract that first refund amount from your amended total and send you the difference.

Make the correction, even if it costs you
What about cases where you find a mistake that's going to cost you some tax money? In the long run, it will be better if you own up to your oversight first.

It's a good bet the IRS will eventually discover your error, too, and come looking for its missing cash. The quicker you correct an underpayment, the sooner you'll stop any interest that the IRS will charge.

If you are filing more than one amended return, be sure to mail each in a separate envelope to the IRS center for the area in which you live. The 1040X instructions list the addresses for the centers.

And don't forget your state taxes. Changes you made on an old federal filing might affect a previously filed state return. Check with your state's tax department for details on amending tax filings at that level.

Freelance writer Kay Bell writes Bankrate's tax stories from her home in Austin,
Texas, and blogs on tax topics at Don't Mess with Taxes
.

-- Updated: March 16, 2007
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