Net income provides a more accurate account of the financial status. Here’s why.
What is an amended return?
The phrase amended return refers to changes made to a tax return from prior years. If you made a mistake on your tax return, filing an amended return with the Internal Revenue Service (IRS) corrects the errors.
Taxpayers have three years to amend any mistakes made on a tax return. Meanwhile, the IRS performs random audits of tax returns going back six years. If the IRS believes a taxpayer deliberately submitted a fraudulent return, there is no statute of limitations on reopening a file for auditing. IRS form 1040X is used to file amended returns.
Submitting an amended return will not get you into trouble with the IRS. On the contrary, they encourage taxpayers to file amended returns if errors need to be fixed. Reasons for filing an amended return include needing to correct filing status, incorrect total income or number of dependents, or to claim tax deductions or credits that were not claimed when the original return was filed.
Don’t forget about state taxes. If the need arises to amend a federal tax return, it’s normally necessary to file an amended state return as well. As with the federal return, do it as soon as you realize there’s a problem to minimize interest and penalties.
Amended return example
If a taxpayer misreported how much money she made or forgot to claim a dependent or a tax credit, an amended return can fix the situation. One situation in which you don’t need to file an amended return is if you find you made mathematical errors. The IRS automatically searches for, and corrects, such errors.