Don’t panic if you made a mistake on your Taxes File an amended federal income tax return. Here’s how.

It’s a common occurrence during tax filing season to discover that you botched a previously filed return.

Say you just figured out that you missed some tax-saving deductions and credits on your 2021 Form 1040, which you filed only a few weeks ago. Or you might have just learned that you failed to claim some righteous breaks on your 2020 prior year return, which was filed last year. Don’t feel bad. With today’s ultra-complicated tax rules, anyone can make a mistake. Now you can fix the mistake (whether it’s in your favor or not) by filing an amended return using Form 1040X (Amended U.S. Individual Income Tax Return). While this might sound like a daunting task, it’s actually pretty easy in most cases.

Here’s what you need to know.

Amended return basics

The first thing to know is that you should not attempt to correct the situation by filing another original return using Form 1040. That will just confuse the IRS and cause headaches for you. Instead, be sure to file a Form 1040X, even if you’re amending a 2021 return that was filed only a few days ago.

The refund situation

If amending your return will produce a tax refund, the deadline for filing Form 1040X is generally the later of: (1) three years after the original return for the year in question was filed or (2) two years after the tax for that year was paid. In most cases, the three-year rule is the one to focus on.

If you filed your original Form 1040 before the April 15 deadline, you’re considered to have filed the return on April 15 for purposes of the three-year rule. However if you extended the return to Oct. 15, you’re considered to have filed on the earlier of the actual filing date or the Oct. 15 extended due date.

For example, say you filed your 2014 Form 1040 on 3/1/15 and paid the tax due on that date. You now realize you should have itemized deductions instead of taking the standard deduction. Based on the three-year rule, you have until 4/15/18 to file an amended 2014 return, on Form 1040X, to claim your refund. On the other hand, if you extended your 2014 return to 10/15/15 and then file before the extended deadline on 9/1/15, the three-year period for filing an amended return starts running on 9/1/15.

Naturally, however, the sooner you file the amended return, the sooner you’ll get your refund. So don’t wait!

Tax due situation

This is a trickier scenario. If you now realize you understated your tax liability on the original Form 1040, you’re expected to file an amended return and pay the additional tax. If you don’t and the IRS discovers the error, the government will bill you for: (1) the unpaid tax amount plus interest (currently at a 3% annual rate), (2) the additional failure-to-pay interest charge penalty (at a 6% annual rate), and (3) maybe other penalties, too. But the IRS can waive penalties if you show you had a reasonable cause for the underpayment. For example, you might have reasonable cause if you relied in incorrect advice from a paid tax professional or received incorrect information from a third party (like an erroneous Schedule K-1 from a partnership or S corporation investment).

The sooner you file an amended return on Form 1040X and pay the tax due, the sooner you’ll stop racking up interest and the failure-to-pay penalty.

While you probably know the IRS doesn’t audit very many returns these days, you’re highly likely to get caught if your Form 1040 omitted income that was automatically reported to the IRS on an information return, such as Form W-2 or Form 1099.

Also understand this: the IRS generally has three years after the date the original return was filed to discover errors and omissions and assess additional tax, interest, and penalties. This is the so-called three-year statute of limitations rule. However, a longer six-year statute of limitations rule applies if the original return understated gross income by over 25%. There’s no statute of limitations on a fraudulent return.

Bottom line

If the original return understated your tax bill by only a relatively small amount, you should probably file Form 1040X and pay the Feds if for no other reason than to clear your conscience. But if there was a large understatement, this is a can of worms you don’t want to open before understanding all the consequences — including the possibility that your friendly state income tax collector will get into the act. Consider hiring a tax pro with experience in dealing with past-due tax problems. Hopefully, you can get off the hook with minimal or no penalties. But be prepared to pay at least the past-due tax plus interest.

Form 1040X in a nutshell

Assuming there’s no big past-due tax problem, you can probably prepare Form 1040X all by yourself if you take your time and carefully follow the instructions. The form is only two pages long. Basically, you enter numbers from your original Form 1040 in column A of Form 1040X, any changes to original amounts in column B, and the corrected amounts in column C. You then explain each change in the space provided on page 2 of Form 1040X.

Be sure to use the current version of Form 1040X, which you can print out from the IRS website. (Right now, the current version is dated December 2022.) If you need to attach corrected or additional tax forms, be sure to use the forms for the year you’re amending. For example, if you’re filing Form 1040X to claim additional itemized deductions for 2019, you’ll need to attach a corrected 2019 version of Schedule A. The IRS website has prior-year tax forms too (click on Forms & Pubs and then click on Prior Year Forms & Pubs).

Contact Napoli Tax Services LLC for Tax Prep and Tax Resolution assistance. We can assist you with preparing and filling your Amended Tax returns. #AmendedTaxReturn

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