Out of sight, out of mind. When it comes to old tax returns, that’s an approach many people like to follow. But before you completely forget about your old tax forms, you may wish to consider filing an amended return.
Why file an amended return?
If you made a mistake on a prior-year tax return, an amended return is the way to set things right. Arithmetic errors, missing information, and oversights are all fairly common, and generally there’s no reason to fear filing an amended return – whether you owe money to the IRS or vice versa.
Certain special situations can also trigger amended returns. For example, if you suffer a casualty loss in a presidentially declared disaster, you may deduct the loss on your tax return for the year of the disaster, or you may amend the prior-year return and deduct the loss in that year. The best strategy depends on your tax bracket for both years, plus other factors such as the amount of your loss and whether it occurred early or late in the year.
An amended return can help ease the sting of certain business and worthless security losses. You also may benefit from an amended return if there’s a retroactive change in the tax law as a result of new legislation or a favorable court ruling.
Use Form 1040X
Form 1040X (“Amended U.S. Individual Income Tax Return”) is the IRS form designed for amended filings.
Generally, you have three years from the time your return was filed or two years from the time the tax was paid, whichever is later, to file an amended return.
Be sure the changes you want to make are valid. The tax laws have changed frequently over the past several years. What was deductible one year might not be deductible the very next year, and the list of items includable in taxable income has also changed from year to year.
Also, although filing an amended return is not necessarily a red flag for an audit, some changes are looked at more closely than others. For example, claiming additional travel and entertainment expenses on an amended return may be risky.
If you have omitted income from your return, you should file a 1040X as soon as you become aware of the omission. You may owe additional taxes, interest, and perhaps penalties. The proper presentation of previously omitted items is crucial and is best left to a professional.
Regardless of the reason for the amended return, be sure to keep good records to substantiate the reasons for the change.
If, as a result of the changes, the IRS owes you, you will receive a refund with interest. If you owe the IRS, payment should be made with the 1040X. The IRS will bill you for any additional interest.
Looking to have your return amended? Contact Loeffler Financial today at 717-393-7366.