If you made a mistake on your tax return, you can correct it by filing an amended return. You may also need to amend returns in other situations.
The process of amending a return is not that difficult, but understanding when to amend a tax return can be. The goal of this article is to discuss when and why you might want to file (or avoid filing) an amended return.
To get guidance on whether you should amend or to get help amending a previously filed return, contact us at Damiens Law today.
What Is an Amended Tax Return?
An amended tax return is a tax return that’s intended to correct any omissions or errors in the originally filed return.
If you made a calculation error in your return, you don’t need to amend it. The IRS will amend it for you and send you a notice. However, if you made a more significant error such as not reporting income, you should amend your return.
If a tax preparer finds a mistake in a previously filed return that they did not prepare for you, they are not required to amend the return. However, once they tell you about the mistake, you should strongly consider amending your return.
Note that amended returns aren’t the same thing as superseding returns. Amended returns are filed after the deadline for filing the original return. In contrast, superseding returns are filed before the original return’s filing deadline, and they supersede the originally filed returns.
Superseding returns have several potential benefits over amended returns that may apply in specific situations, such as avoiding accuracy-related penalties, or requesting an election (like a net operating loss carryover) on a business tax return.
When to Amend Your Individual Tax Return
Most people file an amended return because they forgot to include a document, such as a W-2 or 1099. Others amend it because they forgot to claim a deduction or used the wrong filing status. When these errors are in the IRS’ favor, making these corrections can lead to a larger tax refund check or a lower tax bill.
Other common reasons for amending a tax return are that you:
- Included the wrong amount of taxable income
- Miscalculated your deductions or credits
- Claimed the incorrect amount of dependents
- Need to claim premium tax credits
If any of these scenarios apply to you, then you should consider filing an amended return. The process isn’t as complicated as you might think. All you need to do is file IRS Form 1040-X, Amended U.S. Individual Income Tax Return. If you’re unsure if you need to amend, the best thing to do is speak with a tax professional.
Can You Amend Business Tax Returns?
Yes, you can amend business tax returns, just as you can individual income tax returns. In this case, you should also look for the number of the original form, followed by an X. For example, if you want to amend your 941 payroll tax return, file Form 941-X. If you need to amend your 1120 corporate income tax return, file Form 1120-X.
Unfortunately, some business returns don’t offer a specific form to amend. For example, with the 1120-S S-corp return, there is no corresponding 1120-S-X form. In that case, you need to refile the 1120-S but tick a box that says “amended”. If you’re not sure how to amend your business returns, consult with a tax attorney.
Deadlines for Amending Tax Returns
To get a refund, you must file an amended return within three years of the original return’s due date or within two years of the date you paid the tax, whichever is later. You usually want to act as quickly as possible, as any corrections that fix mistakes that were in your favor can still lead to penalties or interest.
There are some exceptions to this deadline, such as being in a combat or federally declared disaster zone. Unfortunately, if you miss a deadline and aren’t eligible for an extension, then any missed tax benefit (like a credit) that you could have been eligible for with a timely filed amended return is lost for good.
Note that there are refund deadline exceptions for net operating losses, foreign tax credits, bad debts, and other issues. Otherwise, if you’re not trying to claim a refund, you can amend a return at any time.
Can you amend a return to carry back a net operating loss (NOL)?
Prior to 2021, you could carry back net operating losses, and to do so, you need to file an amended return. However, for tax years, 2021 and moving forward, you cannot carry back NOLs, you can only claim them on future returns. However, there is an exception for certain farming losses which can be carried back two years.
If you carry back a loss, the IRS will not pay any interest on the refund you claim.
How to Amend Your IRS Tax Return
The 1040-X form is used to make corrections to your already filed 1040, 1040A, or 1040EZ tax return. Be sure to include any schedules or forms that are required with the 1040-X. If the corrections to your tax return result in you owing additional taxes, then you’ll also need to send a payment for the difference or contact the IRS to make payment arrangements.
Because an amended federal return will likely result in an amended state tax return, it’s also important to attach a copy of your amended federal return to your amended state return.
After you file your amended return, expect it to take up to 12 weeks for the IRS to process it. You can check the status of your refund by visiting the IRS website or by calling the IRS. Common reasons for delays in the processing of amended IRS tax returns include:
- Filing an unsigned amended return
- Errors on the amended return
- Suspected identity theft
- Potential tax fraud
When Not to Amend Your Tax Return
Just because you find a mistake on your original tax return, doesn’t always mean you should amend it. There are several instances where it may not be a good idea (or necessary) to file an amended return.
- Missing information – For example, a missing form or schedule. If you notice this mistake, you can be confident that the IRS will notice this too. When they do, they’ll send you a letter asking for the missing information.
- Inability to pay – Filing an amended return won’t change your outstanding tax balance and there are several options to pay your tax bill over time, such as with a payment plan.
- Delayed tax refund – The IRS gets behind on processing tax refund checks often, so delays should be expected. If you’ve moved since you filed your return, be sure to notify the IRS of your new address. To avoid tax refund delays in the future, consider asking the IRS to send any tax refunds directly to your bank account.
- Math errors – The IRS will spot this error and make the necessary adjustments to your return for you.
- Intentional tax understatement on the original return – You might wish to “come clean” to clear your conscience and hope that the amended return might avoid any legal trouble such as being charged with tax evasion. Unfortunately, filing an amended return to correct a prior fraudulent return could serve as an incriminating admission of guilt. It’s best to talk to a tax lawyer to discuss what an amended tax return could mean for future civil or criminal prosecution. In this case, you may be better off looking into the Voluntary Disclosure Program (VDP).
Financial Implications of Amending Your Tax Return
If you amend your return and the changes lead to a refund, the IRS will send you the refund plus interest back-dated to the original due date of the return.
In contrast, if you amend your return and it increases your tax liability, you will owe the IRS the difference plus interest back-dated to the return’s original due date. You may also incur a late penalty and depending on how much income you underreported, you may have to deal with an accuracy-related penalty.
This also applies if you claimed a refund, the changes reduce the amount of your refund, and now, you owe the IRS the difference plus penalties and interest. You may face a 20% penalty for claiming an excessive refund.
How to Avoid Needing to Amend Your Return
The best way to avoid having to file an amended tax return is to double-check your original return before you file it and consult with a knowledgeable professional if you have a complicated tax situation.
Make sure all the information is correct and that you have included all the necessary forms and schedules. Also, asking a tax pro for help is a good idea. You don’t know what you don’t know, and someone with experience with income tax returns looking for your return can identify any mistakes.
How Hiring a Tax Attorney Can Help
While you’re not required to have an attorney file an amended tax return, there are several situations where it may be beneficial to hire one.
For example, if you owe taxes and are unable to pay, a tax attorney can negotiate with the IRS on your behalf to set up a payment plan. A tax attorney can also review your amended return for completeness and ensure that all of the mistakes or errors from the original return have been addressed. The last thing you want to do is spend all that time and effort with an amended return only to find there are other corrections still required.
Lastly, a tax attorney will confirm filing an amended return is in your best interest, especially when the original return contains evidence of possible tax fraud. They can also handle any communications or negotiations with the IRS should any issues or concerns arise after filing the amended return.
Talk to a Tax Attorney to Discuss Your Amended Tax Return
To learn more about when and how to amend your tax return, speak with an experienced tax attorney from Damiens Law. They can help you understand your options and work to resolve any issues related to your taxes. You can call us at 601-957-9672 or reach us online.
