Filing an Amended Tax Return

Find out when it makes sense to file an amended return and possible consequences.

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What do you do if you discover any of the following after you filed your tax return for the year:

  • you forgot to take a deduction
  • you claimed a deduction that you were not entitled to take
  • you entered incorrect information on your return, or
  • a retroactive change in the tax laws makes you eligible for an additional deduction.

The answer is simple: File an amended tax return for the year.

Tax returns are not engraved in stone. You can amend a return any time within three years after the date you filed the original return.

You need not amend your return if you discover that you made a simple math error. These will be corrected by the IRS computers, and you’ll be notified of the change by mail. However, if you made a mistake in your favor, failed to report income, or took deductions which you were not entitled to take, amending your return may avoid all or some fines, interest, and penalties if you’re later audited by the IRS.

On the other hand, if you've been chosen for an audit, it is better not to file an amended return after the audit starts. Chances are that the audit group will not get the amended return, and filing an amended return will only create confusion. It is better to discuss any proposed change in your return for the year with the revenue agent conducting the audit.

It has long been believed by tax experts that filing an amended return increases your chances of getting audited. For this reason, some people refrain from amending their returns, even if they discover the IRS owes them money.

However, IRS officials have recently denied that filing an amended return automatically triggers an audit. Amending your return will likely not result in an audit unless there is a substantial change in your taxable income without a reasonable cause. Moreover, you're more likely to be audited if you claim the IRS owes you money, rather than the other way around.

You shouldn't be afraid to amend your return if you have a legitimate reason to do so. Just make sure you do it properly. File the proper form, usually form 1040X, and clearly explain the reasons why you are correcting your tax return--for example, you:

  • received another Form W-2 after you filed your return
  • forgot to claim the child tax credit
  • changed your filing status from qualifying widow(er) to head of household, or
  • are carrying an unused net operating loss or credit to an earlier year.

You should have documentation to back up your claims.

 

by: , J.D.

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