You may think of amended tax returns as a way to correct an error on your tax return, but there are other situations where amending your tax return can be to your advantage.
How to file an amended return: If you are amending a form 1040, file form 1040X to amend the return. The amended return must be filed generally within three years of when you filed the original return. For example, if your filed your original return on April 15, 2014, then you have until April 15, 2017 to amend it. Amended returns are not eligible for electronic filing, so you will have to mail it in.
Attach all backup documents: In order for the amended return to be processed smoothly, make sure to attach any backup documents. If you received a K-1 or 1099 late, for example, attach a copy of the K-1 or 1099 to your amended return. If the amendment is a little complicated, attach a cover letter to the return that explains the amendment in more detail.
Amended returns extend the audit period: Normally the IRS has three years to audit your tax return, but if you file an amended return, the audit period is three years from the date you file the amended return.
Here are some common situations where you might file an amended return:
IRS notice: As part of the computer matching program, the IRS compares your tax return against other documents that have been sent to the IRS, such as W-2s, 1099s and K-1s. If you did not report a 1099 from stock sales, the IRS often has only the sale price but not the cost of the stock. In order to properly report the gain or loss, you probably should file an amended return.
Carryback of net operating loss: If you have an operating loss from your business in the current year, you may be able to carry back two years to offset prior years’ taxes. You can do this via an amended return or filing form 1045, which is an abbreviated version.
Errors discovered in later years: You or your tax preparer may discover an error when reviewing your prior year returns and amending may result in getting money back. Some of the errors are miscalculated penalties on early IRA withdrawals, persons not claimed as dependents, and missed credits or deductions.
Change in filing status: You can amend status from single to head of household or married separate to married joint if you qualify.
So if you think you may need to amend, check with your tax adviser. There is no reason to be afraid of amending a tax return, especially if the issues are clear cut. If you have some sensitive items on your return, you may weigh the risk and cost of audit against the tax savings from filing an amended return.
– Patrick Harper, a CPA and Fountain Valley resident, is a partner with Harper & Harper Tax and Accounting Services. Contact him at 714-274-9387 or patrick@harpercpa.biz.
