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If you discovered a mistake on your tax return, don't panic. In most cases, you can fix the error by filing an amended tax return.
Sometimes a mistake could cost you, like forgetting to include income earned on an investment account. Other times, it might lower your tax bill, such as when you run across a forgotten receipt for a generous charitable contribution you made.
Either way, the IRS provides second chances to get your tax return right with Form 1040X.
This X-file is normal
There's nothing supernatural about this X-file.
For a tax form, the 1040X is pretty easy to complete. Basically, the IRS wants to know what you originally reported, what your corrected numbers are and why you are making the changes. 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.
And, in most cases, you can change your filing status, which could get you a bigger refund. For example, a new divorcee filed this year as a single taxpayer. But that cost her some tax money because she has custody of the kids. She should have filed as a head of household, which would have given her a larger standard deduction.
These are the kind of things you can correct with a 1040X.
Couples who filed separately also can change a return to married filing jointly so they can get some tax breaks not allowed to separate filers. They can't, however, do the reverse. Changing from joint to separate filing after a return's deadline has passed is not allowed.
Form 1040X filing tips
- File a separate Form 1040X for each year you are amending.
- Mail each form in a separate envelope.
- Be sure to enter the year of the return you are amending at the top of the form.
- Explain, as needed, on the back of the form the specific changes and reasons for each.
- Attach any forms or schedules that are affected by the change.
- Federal 1040 changes could affect your state taxes. Your state tax office will have information on how to correct your state tax return.
When the IRS benefits
Taxpayers also should be diligent about correcting their returns, even if it means they end up paying a bit more in taxes.
Why? Because it's a pretty safe bet that the IRS is going to discover your error eventually.
If it's a simple addition or subtraction mistake, there's no need to amend the return. The IRS says its computers will detect the error, notify you and adjust your return automatically.
But if it's something bigger -- you overlooked a Form 1099 for $1,500 you got from a freelance house-painting job -- and you catch and correct it first, it could save you from paying even more to the IRS.
The IRS may not penalize you for this honest mistake, but it sure will collect some interest on the proper amount you didn't pay on time in the first place. The sooner you correct the error, the less interest you'll pay.
"We had one preparer who filed a client's return," says Jackie Perlman, CPA and principal tax research analyst with The Tax Institute at H&R Block, "and then the employer informed the person that he would be getting a corrected W-2, so it had to be refiled.
"You just want to be sure you have a correct return," she says, "whether it's in your favor or not."
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Year-round amended filing season
Such corrections are a year-round occurrence, but tax professionals say the need to amend a return often is discovered during the following year's filing season.
"Sometimes when you're having next year's return prepared," says Perlman, "the professional says, 'Oh, you didn't tell me about that last time.'"
Then there's the case where a little more knowledge can mean more tax-filing work.
"We've had people take income tax courses to help them do their own returns and pick up items where they could or should amend a return," Perlman says.
Amending time limits
But don't go searching through old files for ancient tax returns in the hopes of possibly eking out a few more refund dollars.
The IRS generally gives taxpayers 3 years after the original return's filing date to make any changes with a Form 1040X. If you filed early, you get 3 years from the return's due date to correct any errors.
Your timetable on amending a return changes a bit, however, if you didn't pay all the tax you owed with your original filing.
If you filed and owed money, you have 2 years to amend the 1040 from the date that you finally paid your owed taxes. For example, you filed your 1040 on April 15, 2014, and paid $400 of the $500 you owed. You paid the final $100 (plus penalties and interest) on Jan. 10, 2015. You have until Jan. 10, 2017, to amend the original filing instead of the usual 3 years -- until April 15, 2017 -- you would have been afforded if you had paid your tax bill in full and on time.
If, however, the 2-years-since-payment date arrives after the standard 3-year time limit, the IRS says you can amend your return using the deadline that comes later. In the earlier example, let's say you finally paid your tax bill on June 10, 2015. That would give you until June 10, 2017, to amend the return, almost 2 months longer than the original 3-year amending option.
Similarly, if you paid your taxes late, but not that late (say, in our example, on Aug. 10, 2014), and the 3-year grace period from the original filing date provides you more revision time (which it would, since April 15, 2017, is later than Aug. 10, 2016), you can use it.
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Can't do it electronically
As for the actual filing, even if you regularly e-file, you'll have to send in a paper Form 1040X. The IRS is not yet equipped to handle this form electronically. Be sure to pay attention to the mailing addresses in the form's instruction book. Amended returns don't always go to the same IRS service center that processes regular returns.
Remember, too, that your state tax liability might be affected by a change you make on your federal return. So double-check your state tax records for the year that you're amending your federal return to see if changes need to be made at the state (or local) level.
Getting it right pays off
But don't automatically reject filing an amended return out of fear of inviting an IRS audit.
Sure, the IRS will take a close look at an amended return that's netting you a refund. And that means tax agents could conceivably look at your original tax paperwork in the process.
So why, ask hesitant amended filers, should they invite the extra attention, especially if they file just within the 3-year amendment limit -- the same time period after which the original 1040 would be off the tax examination radar?
"An amended return might just draw attention to a return," says Perlman. "But, really, people shouldn't be concerned. The main thing with tax filing is to get it right."
And that means getting it right any time.