How Filing Tax Amendments Works
You sign your Form 1040, seal it up in an envelope and send it off to the Internal Revenue Service two weeks before April 15. You watch all your fellow taxpayers panic as April 15 arrives. Then everything is quiet on April 16. Another tax season has come and gone. The only reminder will be that nice refund check that will arrive in your mailbox one sunny afternoon.
But then, on April 29, you're shuffling through your file cabinet when you come across a W2 you don't recognize. It's a statement of wages from the old job you still had at the beginning of the year. You'd forgotten about that job and the W2 from the employer. You realize you didn't report this income on your Form 1040.
Pop quiz, hot shot: What do you do? It's time for the 1040X: An amended U.S. individual income tax return.
When you need to make a correction to your Form 1040, as in the above example, you can fill out a Form 1040X to show the changes and explain the reasons for those changes.
In this article, you'll read about some of the changes you can make to a return. Then you will learn how to fill out Form 1040X to make these changes. Finally, you'll learn about the time restrictions the IRS places on amended tax returns.
Reasons to File Tax Amendments
You find a 1099-MISC that reports miscellaneous income, such as that received for independent contract work. It turns out that the company that hired you to do German translation work last year didn't withhold any federal income tax.
Uh-oh. Das ist nicht gut. You have not reported all your income for the year. If you file a 1040X to amend your return, you will owe more tax. So why should you report the income? After all, will the IRS ever find out you didn't report this income?
It's possible it won't ever find out, but there's no guarantee. Businesses are required to report to the IRS the wages they pay their employees, as well as payments they make to independent contractors. Plus, evading taxes is illegal.
It's best to amend your return as soon as you realize your mistake, especially if it looks as though you will owe tax. Unpaid tax begins accruing interest, compounded daily, immediately after a filing deadline. The longer you wait to file an amended return, the bigger your tax may be.
Furthermore, if you elect to test your luck and see whether the IRS catches the error, and then the IRS does catch the error two years later, that's two years of interest (and late-payment penalties) that you now owe on top of the unpaid tax.
So how do you know if an amendment is necessary? Check out the list below for what you should and should not report.
You should report:
- changing the number of dependents; for example, you didn't claim a dependent you could have or you realize you claimed a dependent when you shouldn't have
- filing status changes
- any deduction change (standard, itemized, above-the-line)
- personal exemptions
- credits
- additional withholding or income
Do not file Form 1040X if you discover an addition or subtraction error you made on your 1040. The IRS itself will check your math. And, yes, the IRS will notify you if a mathematical error results in a change to your taxes, a good one or a bad one.
Now that you've collected all those misplaced tax forms and are ready to amend, read the next page to find out how to fill out your 1040X.
A Closer ExaminationMany people say the IRS examines the 1040X a lot more closely than they examine the 1040. These people worry that the IRS may start asking you questions about other parts of your return, such as whether or not your military reservist deduction really qualifies. No one knows if this is true, but it might encourage you to be honest and forthcoming on your tax return, amended or not.
1040X Tax Amendment Form
Before you start, pull out a copy of your original Form 1040. If your changes are complicated, you may want to fill out a new Form 1040 to simplify the 1040X process. After all, you don't want to make mistakes on top of mistakes.
You can download Form 1040X from the IRS. At the top of Form 1040X, note what tax year's return you are amending. Be sure to include this, or the IRS will not know which return the form applies to. Remember that a tax year is the year before you actually file -- you file your 2007 tax return in 2008.
Fill in your contact information, Social Security number and filing status.
On the form, you write the numbers you put on your original Form 1040, the corrected numbers and the difference between the two numbers. You can make corrections to:
- adjusted gross income
- deductions
- exemptions
- credits
- tax withholding
- refund or liability
On the reverse side of Form 1040X, you will explain the changes you're proposing. Be as detailed as possible, making references to specific line numbers that have changed values.
If your corrections imply a change to another form or schedule, fill out the appropriate form with the new numbers, and include it with your 1040X. For example, if you made a change to your itemized deductions, you would fill out a new Schedule A. Also, remember to include any documentation, such as that "new" W2 you found, receipts and proofs of purchase.
If lines 19-24 show that you owe the IRS some money, write a check and include it with your amended return. Delaying payment can increase your tax bill. Interest and late-payment penalties are not your friends.
Unfortunately, you cannot file Form 1040X online. You have to do it the old-fashioned way: snail mail.
Mail your amended return, additional corrected forms and schedules, documentation and receipts, and a check (if necessary) to either the IRS processing center that has your original Form 1040, or the processing center recommended in the 1040X instructions.
Next we'll take a look at time restrictions on the Form 1040X.
TransparencyIf your explanation is not sufficient, the IRS will request additional information or documentation, such as a receipt to prove a tax-deductible charitable donation you're now claiming. Don't let your tax bill accumulate interest by delaying explanation.
Time Restrictions on Filing Tax Amendments
You can file a Form 1040X whenever you want. You don't need to wait until the next tax year. If you're to receive a refund with your corrected return, however, the IRS would like you to wait until you receive any refund you are supposed to get for your original 1040. For example, if you file on April 15 and will receive a refund, then realize on April 18 that you have to correct your return, wait until you receive your refund before you mail in your 1040X.
You have three years from your filing deadline to file Form 1040X. For example, for your 2007 return due of April 15, 2008, you have until April 15, 2011, to file corrections.
If you didn't pay all the tax you owed on April 15, 2008, then you have two years from when you paid the last of that tax liability to file a 1040X for that return. For example, you file on April 15, 2008, but you couldn't pay all your tax immediately. Let's say you pay installments for 19 months to pay off what you owe, finishing on November 15, 2009. Now you have two years, until November 15, 2011, to file a 1040X. This two-year restriction applies only if you don't pay your full tax bill by a filing deadline.
The IRS will give you the benefit of time. You have until the later of the two dates to file the 1040X. For example, let's say you didn't pay your whole tax bill on April 15, 2008, but you needed only seven months to pay off the balance, finishing on November 15, 2008. Under the two-year restriction, you would have only until November 15, 2010, to file the 1040X. But because the IRS is kind, it will give you the three-year deadline instead, because that three-year deadline will give you more time than the two-year deadline. So, you have until April 15, 2011, to file a 1040X, in this case.
If you'd like to know more about tax amendments and related topics, you can follow the links on the next page.
The 2008 Tax RebateIf it doesn't look like you'll qualify for a 2008 tax rebate, double-check your return to make sure you can't claim additional nontaxable benefits to meet the $3,000 minimum. The IRS says this is the only way an amended return will qualify you for the rebate. [source: IRS].