How to File an Amended Tax Return – Does the IRS Owe You Money?

You might have found, when going back through your tax return, that there are some mistakes. Maybe you didn’t take the credit you were entitled to. Sometimes, filers report the wrong filing status. No matter the reason, a mistake on your tax return usually means you must file an amended tax return. An amended tax return is meant to help you correct such situations. (Note, though, that the IRS does not consider calculation errors as a reason for filing an amended return; the computer usually catches these.)

This article will discuss why you should care about amended returns, some events that may lead to filing an amended tax return, and an overview of how to file an amended tax return.

Table of Contents

1. Why Do I Care About Amended Returns?
2. Where to Start – How to Know if You May Need to File an Amended Return
1. 1. Change in Status
2. 2. Math Errors
3. 3. Schedule A-Itemized Deductions
4. 4. Schedule D-Capital Gains & Losses
5. 5. Schedule C-Profit or Loss from Business
3. How to File an Amended Tax Return
4. When the IRS Asks You to Amend Your Return
5. What to Do if You Owe the IRS More Money
6. Conclusion

Why Do I Care About Amended Returns?

Many amended returns result in a refund.  The refund is the difference between what you received & what you should have gotten if your original return was filed properly.  You might be leaving money on the table if you:

• Prepare your own taxes without professional assistance
• Changed tax professionals
• Use a ‘tax preparation service,’ like H&R Block, or
• Had a major life change (such as a change in marital status, dependents, or house move)

Conversely, you could be waiting for the IRS to find your mistakes.  In that case, the IRS might tell you that you owe more than your tax return indicated.  If this happens, you may not have enough liquidity to address your ‘sudden’ tax liability.  All this from a return you filed several years ago.

The general rule is that you can file amended returns for up to 3 years after the original due date (or the filing date if the due date was extended). However, there may be additional restrictions that apply if you:

• Missed previous filing or payment deadlines
• Are amending a previously amended return

Where to Start – How to Know if You May Need to File an Amended Return

If you think you may want to amend a return, below are five places to start:

1. Change in Status

This can be:

• PCS or separation move
• Change in filing status (such as getting married, divorced, or having a baby)

2. Math Errors

The IRS usually will correct math or transposition errors during the initial processing of a filed tax return by comparing the return to supporting documents. However, it doesn’t hurt to check for errors, particularly on things the IRS might not be able to see, such as receipts.

3. Schedule A-Itemized Deductions

If you recently bought or refinanced a house or given a lot to charity, it may benefit you to look at your Schedule A to see whether you should amend your return. This area is worth looking at if you forgot a contribution or noticed that you missed information on your return. Schedule A contains most of your itemized deductions.  These include:

• Charitable contributions
• Mortgage interest
• Real estate taxes
• State income or sales taxes (you choose which to deduct)
• Miscellaneous deductions.

A commonly missed deduction is from your end-of-year mortgage statement (also known as a Form 1098), where people may have deducted mortgage interest but forgot to include such things as real estate taxes paid, interest from a second mortgage, or other related costs.

4. Schedule D-Capital Gains & Losses

Tax harvesting seems to be a catchphrase during the end of the year.  However, many people make mistakes when recording their capital gains on their tax returns. A common mistake is listing the sale price of a stock but forgetting to note the basis price (purchase price + commission). Not only does this apply to securities such as stocks & mutual funds, but it applies to selling your home.  When calculating your home’s basis, don’t forget to add the cost of the following:

• Major improvements, systems & renovations. Think roof replacement, air conditioners, or kitchen remodeling. Major projects (not repairs) will increase your basis, therefore lowering your taxable gain.
• Closing costs from buying the house.
• Real estate commissions & closing costs should be considered when selling.  While these don’t lower your basis, they lower the sales price for tax purposes.

Many military families rent out their homes when they PCS.  When selling a rental property, depreciation is also something to consider.  I cannot recommend highly enough that you have your taxes professionally prepared in he year that you sell any rental property (before, actually). 

You should sit down with a fee-only financial planner who specializes in tax planning to make sure you’re taking everything into account if you are considering the sale of your home/rental property.

5. Schedule C-Profit or Loss from Business

Got a side gig, like some consulting or project-based work? If you do, but you never filed a Schedule C, you should look a little further to see what you may be able to deduct. You’re also responsible for paying both sides of the self-employment tax (½ of which is tax-deductible). If you did your own taxes and filed your own Schedule C, you might want to sit down with an enrolled agent or CPA to make sure you did it correctly.

How to File an Amended Tax Return

You usually have three years to file an amended tax return, dating from when you filed the tax return that needs a correction. So if you didn’t take a credit on your most recent tax return, you can file your amended return and possibly get a tax refund. Realize, too, that once you file your original return, you can’t file another more accurate one. Once your return is off to the IRS, you must file an amended return to fix any errors.

The proper form for filing an amended tax return is 1040X. You can usually find this form at the library, city offices, or at IRS.gov. You can also file an amended tax return using tax filing software, such as TurboTax, H&R Block, TaxAct, and others.

Starting with the 2010 tax year, you can file your amended return electronically using e-file. This should speed up the process of processing amended returns and help you get the money you might be owed a little bit faster.

When the IRS Asks You to Amend Your Return

Sometimes, the IRS will ask you to amend your tax return. This means that there is a suspicion that not everything is above board. The IRS will send you a letter — via mail — with the request. Make sure that you comply with the request. Be sure to include a copy of the letter asking you to file an amended return with your documentation.

Filing an amended return can be a way to remedy a problem with your tax return. Indeed, it is the only way to fix some of the more glaring mistakes and omissions. Make sure you file your 1040X properly. If you have questions, it might be a good idea to consult with a trusted tax professional who can help you properly prepare your documents.

What to Do if You Owe the IRS More Money

You should also be aware that if you owe additional money to the IRS, you will need to make that payment by Tax Day in the year that you file the amended return. Regular payment methods accepted by the IRS, including paying by credit card, can be used to meet your tax obligation.

Include, with your 1040X, schedules and forms that contribute to the reason you are filing the amended return. This means you need to include W-2 or 1099 forms that may have been forgotten. If you made a mistake filling out a form for a tax credit, or filling out one of the Schedules, you will need to include that as well, properly filled out this time.

Conclusion

This article doesn’t replace competent tax advice tailored to your specific situation.  It is not an all-inclusive list of mistakes that could be in a tax return. Doing your taxes or sticking with a bad tax preparer could have you leaving money on the table.  Even worse, the IRS could find your mistakes and come after you for the difference (plus interest). If you’re unsure what to do, consult a fee-only financial planner or tax professional that you can trust.

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