People make mistakes; this is part of being human. Unfortunately, when you make a mistake on your income tax filings, it can come back to haunt you in an expensive way, i.e. an audit. If you realize there is an error in one of your past filings, however, you don’t need to panic. There is a process allowing you to make changes up to on up to three years of past filings.
The IRS provides for tax filers to make changes to their income taxes via the amended tax form process. The IRS Form 1040X is the standard document used for modifications by the tax filer. This allows you to change your filing status reported, income earned, changes to any deductions or tax credits you claimed, and revision of any tax calculations you made incorrectly. If the IRS hasn’t already contacted you via an agency notice and made the correction and payment due adjustments themselves, then the Form 1040X is the accepted method for making a correction.
The 1040X Form can be used to make changes on multiple IRS personal income tax filings. This includes Forms 1040, 1040EZ and 1040A, depending on which one you originally sent in. Unfortunately, unlike the original document, you can’t send in an amendment electronically. You must send it in by regular mail. Much of the reason has to do with the fact that you will be required to provide additional documentation to substantiate your corrections, so the IRS wants to see the actual copies when it gets the amendment request.
Basic math errors get captured by the IRS as they process paper returns. Electronic filings also get math-checked before the IRS accepts them as they get submitted. So you don’t need to worry about form math issues. You also don’t need to file an amendment if you forgot to attach a W-2 form for your payroll since your employer also sent that information in as well. The critical issue is that you reported the income earned correctly, so it doesn’t look like you’re cheating and trying to lower your income for tax reduction purposes. The IRS will ask you for the W-2 if didn’t receive it anyways.
Most amendment issues occur because of the choices made by the tax filer when filling out the original forms. Many of the triggers are associated with deductions and whether they apply or not. When deductions or tax credits get claimed incorrectly, then an amendment is needed to recalculate the filing again without the error to get to the true taxes owed.
When filling out the 1040X a couple of items are critical to ensure your amendment gets processed correctly. First, you need to be clear what tax year your 1040X applies to. The form will give you a box to identify this criteria. If you have to amend two different filings in different years, then use two different 1040X forms, one for each tax year. Second, you need to include both yours and your spouse’ social security number (if it applies). Again, the IRS needs this to find your tax records. They don’t search well by name only. The forms should also be mailed to the correct IRS address for review. This is provided in the back of the IRS 1040X Instruction Manual.
Backup documentation attached to the 1040X is frequently necessary. When you make changes to deductions or income, you will likely need to revise the necessary IRS forms and schedules that go with those changes. You will be required to attach the original schedule or form as well as your amendments, and label them clearly. It’s best to place the label at the top of the page, marking the document as either “ORIGINAL” or “AMENDED VERSION”.
When realizing you owe additional taxes, this will become evident as you fill out the form and determine your outstanding amount owed. You will need to calculate any interest and late payment penalties that apply as well. You can pay the principle balance when you sign your 1040X form and send it in, and wait for the IRS to determine the interest or penalties. Or you can send in your combined estimate payment and hope you got it right. If you’re off on the dollars, the IRS will send you a notice telling you the difference still owed and how to pay it, or they will send you a refund of the overpayment. In practice, it is better to send in an estimate, as this stops the accrual of outstanding interest and penalties on balances owed.
If you’re claiming an additional refund, you better have the documentation to prove it, and you should attach that documentation to your 1040X Form. Unlike the original tax filings, amendments get a closer scrutiny, particularly if you’re asking for more money back. Such a request could trigger a wider review of your entire tax filing.
Do not file another 1040X if you find another mistake while you have an early 1040X pending. Wait for the IRS to make a determination on the first amendment before sending a second one. The IRS will send you an official determination closing the case on your first amendment request when the agency is finished with its review. Keep this document with your original tax filings as proof of amendment acceptance. Then file your second amendment if necessary.
If you get audited and receive an IRS notice to appear to explain your original filings, and you find errors ahead of time, it’s worth the effort to fill out the 1040X with the calculations and payments due, and present these to the auditor in the meeting. This saves time explaining the items and it shows that you proactively corrected problems. While it won’t lower an outstanding bill, it will work in your favor during the audit.
Sources:
IRS Form 1040X, Amended U.S. Individual Income Tax Return
IRS Form 1040X Instructions
IRS Tax Topic 308 – Amended Returns