The Ultimate Guide to Amending Your Tax Return

For many taxpayers there is minimal information necessary to file their income taxes. Other taxpayers have multiple sources of income that must be reported, as well as various deductions and credits that must be considered. Regardless of which category you fall into there is a chance that something could have been forgotten or left out, that needed to be included. There could have been information that is required to be reported that was not included, or there could have been something that gave a taxpayer greater benefit that was not included. In situations such as these it might be imperative that you file an amended tax return.

An amended tax return is filed to make corrections to a previous year tax return that has already been filed. Form 1040X must be used in order to file an amendment. The completed form 1040X must be mailed to the IRS Service Center that processed the original tax form, it could take up to 16 weeks for processing. If you are filing an amendment in order to claim a refund, you have a 3-year statute of limitations window that will allow the issuing of a tax refund check. The only time that refunds past the 3-year statute of limitations will happen is if there were amounts overpaid for taxes during the previous 2 years. If an amendment is filed because there is additional income or because there were overstated deductions, then there is no statute of limitations, these exceptions can be filed at any time. It is important to note that if the original return you filed resulted in you under-paying your taxes, then you should file the amendment as soon as possible. The longer you wait to do so will cause you to owe more in interest and penalties.

Reasons to file an amendment

Change in filing status

One reason you may need to file an amendment is if there is a change in your filing status. A situation like this could occur if a taxpayer files their return using the Single status when they could have filed using the Head of Household status. In this case the taxpayer is generally losing out on $6,000 of the standard deduction (2018), if they are not itemizing. Also, the tax brackets are more generous when it comes to Single vs Head of Household taxpayers, for example for the 2018 tax year a Single tax payer moved to the 12% tax bracket after a taxable income of $9,525 and moved to the 22% tax bracket after a taxable income of $38,700. On the other hand, a Head of Household taxpayer can earn up to $13,600 of taxable income before moving up to the 12% tax bracket and $51,800 of taxable income before moving up to the 22% tax bracket. As you can see choosing the correct filing status can make a big difference.

Inaccurate reporting of total income

Another reason to file an amendment is if you inaccurately reported your total income. By mistake people often leave various sources of income off their tax return. People often receive Form W-2, 1099, Dividend, Interest, or K1 after they have already filed their income taxes. Also, these before mentioned forms could have been received and included when the taxpayer filed their income taxes, but later they received a corrected tax document which contained the accurate information needed by the taxpayer. These corrected tax documents on a basic level may have different income or withholding amounts. Odiously differences in income and withholding will affect the outcome of the tax return in a positive or negative way. As mentioned earlier if the corrected or additional document that you are including in the amendment of your taxes will benefit you in the way of getting a tax refund check, this must be done within 3 years if the due date for that year’s tax return. If the outcome of the corrected or additional tax document results in you owing money to the IRS, then filing an amendment is not necessary. The IRS will most likely compute what you owe and send you a letter to inform you.

Change in deductions or credits

If you incorrectly claim expenses to itemize as deductions or to receive credit on your tax return, you should amend your taxes to correct the error. Overstating or errors in claiming deductions or credits is one of the top reasons that the IRS will audit a taxpayer. On the other side of things deductions and credits can greatly affect the amount a person pays in taxes. Not utilizing applicable tax deductions or credits because one is not aware of the availability also could be a costly mistake.

Inaccurate reporting the numbers of dependents

In some cases, there are misunderstandings or disagreements as it concerns which taxpayers should claim someone as a dependent. If something like this happens and a taxpayer files their income taxes, they will need to file an amendment in order to add or remove the dependents that were or were not previously claimed. Even if a taxpayer includes all the necessary dependents on their tax return, there is a chance that they may have incorrectly taken a tax credit. An example of this is claiming the American Opportunity Credit for a dependent who could qualify for the credit, but was not in enrolled in college half-time for at least one academic period. In this case if you take the American Opportunity Credit, you will need to file an amendment to correct the error and avoid the possibility of receiving a tax bill later on.

The reasons to file an amended tax return may be clear to you by now but just to limit any confusion, let talk about when you should not file an amended return.

1. If you get an IRS CP2000 notice, which is to inform a taxpayer that the IRS’s records show that they underreported income. The taxpayer only needs to respond to the letter, not file an amendment. An amendment would go to a totally different unit of the IRS. An amendment will make the process of resolving the issue slower and possibly more complicated.
2. If you get an IRS audit notice, you should simply respond to the notice with the information that the IRS requested. An amended return cannot be used to resolve the audit.
3. If there was a mathematical error when you filed your original return, there is no need to file an amendment. The IRS usually with catch the error and send a notice to inform you.
4. If you are behind on filing your income taxes the IRS can ultimately file what is called a substitute for return. The IRS prepares the taxes using only the information that was provided to them by a taxpayer’s employer, bank, or other payer. This substitute return will not include any credits or deductions that favor the taxpayer. To replace the substitute tax return in order to apply things like, deductions, credits, or even a more advantageous filing status you can file a form 1040 US Individual Income Tax Return, an amendment is not necessary.
5. If you are interested in addressing penalties to have them waived or reduced, an amendment is not necessary. The IRS does provide options for taxpayers for penalty relief; first-time penalty abatement, penalty abatement due to reasonable cause, and statutory exception. There is also an option to appeal the decision if penalty relief is not granted. For more info see the following link. 
6. Filing an amendment is always a good thing to do if there are errors on your tax return, that an amendment will solve. As with any other tax related matter, please feel free to consult with a Molen & Associates Tax Professional before making any final decisions.

Arthur Harrison
Tax Advisory & Accounting