Have you ever filed a tax return only to realize later that you made a mistake? Maybe you got a late or corrected 1099 or W-2 after you signed, sealed and delivered your return. Maybe you underestimated the tax liability on your mutual funds or sale on property. Whatever the reason, the last thing anyone wants is the IRS breathing down their necks. Even if you had the best intentions and/or the mistake was the result of circumstances beyond your control, you have to get this error fixed fast. The IRS isn’t known as a compassionate or sympathetic body. Fortunately it’s pretty easy to set things right.
First things first.
Download Form 1040x, Amended U.S. Individual Income Tax Return. Make sure you have a copy of the original return for reference. You’ll need to copy the information from the flawed return to the 1040x and then show the change and new amount owed on part 1 of the form. The 1040x form also has Part II. You only need to fill that out if you have changes to your exemptions but you’ll follow the same procedure. Show the amounts you originally filed, the change and the new corrected amount.
Don’t overlook Part III. This is where you explain to the kind IRS folks why you are amending your return. This is absolutely a case where “less is more”. A few sentences should do the trick. Don’t overdo it. Be as direct as, “received a correctly 1099” or “miscalculated profit on sale of stock”. Don’t worry. If the IRS wants more information, they will ask for it. But don’t open any doors that are better left closed. Be as succinct as possible.
Go through this process for each return you need to amend. And remember that if you are amending your federal return you’ll probably need to amend your state return as well.
If you simply need to update your address, don’t bother with the 1040x. Use the Form 8822, Change of Address instead. And if you want the IRS to abate or refund penalties and/or interest use Form 843, Claim for Refund and Request for Abatement.
No matter what, keep things simple. Don’t just send in a new corrected 1040 without an explanation. Use one of the forms referenced above. If you don’t, the IRS might just send you back the new return and slow things down tremendously.
How to avoid mistakes
Clearly the best strategy is to avoid making tax errors in the first place. The best way to do that is to hire the right CPA or, if you do your own taxes, make sure you use the right software package. The software walks you through your tax prep one step at a time so it’s very easy to get it right.
Have you ever had to go back and clean up a prior tax error? What was your experience? How would you do things differently today?