Amending a tax return
There’s usually an element of relief after filing your annual tax return. But what do you do if you find an error on your tax return? Should you always file an amended return? Here are some things to consider regarding amending a tax return.
Errors in the IRS’s favor
Errors discovered that lead to an additional tax obligation must be fixed by filing an amended tax return. This is especially true if the error is missing information on Form 1099 or Form W-2. Remember, the IRS receives all this information, and matching programs will typically catch the error.
If correcting the error or omission results in a large, additional refund, the answer is usually obvious. File the amended return! But this isn’t always the case.
Errors that result in a lower tax
- Your tax return is now open for a longer period of time. Federal tax returns are typically subject to audit for three years after the original tax return’s due date OR the date the return was filed, whichever is later. If you file an amended tax return, the audit clock may change based on the amended return filing date and degree of change requested. So it may trigger a request from the IRS to extend the audit review period. The refund also resets the IRS erroneous refund recovery statute, adding two to five years of possible review based on the latest tax return refund date.
- The amended return may be examined. Amending a tax return could put a spotlight on your tax return. The IRS has certain topics that often trigger individual examination when to file amended returns. Amended tax returns based on things like the Earned Income Tax Credit, Small Business Income, and the Research Tax Credit for small businesses could result in a visit from your local IRS examiner.
- Amending one tax return may require amending others. Making a minor change in one year may require changing in other tax years. Is it worth it?
- Other taxing authorities take an interest. Changing your federal tax return may require filing an amended state or local tax return. Do not assume that an amendment in your favor at the federal level will necessarily favor you on the state and local levels.
- Don’t expect the refund to be timely. The review of tax return amendments can take a long period of time. For example, there have been cases where the IRS delays the initial review of an amended return for over a year and then decides to examine the return. While not typical, the process could take up to 1.5 years to resolve.
- Timing is important. Remember, there is also a time limit to request a change in your tax return and receive an additional refund. This limit is typically three years after the initial filing deadline of the tax return. Make sure you file these tax returns using certified mail. Should the IRS delay responding to your amended return, you may need to prove timely filing.
- You have a chip in your pocket. You should keep the documentation if the refund amount is insufficient to justify an amended tax return. Therefore, if you are one of the lucky ones, you can often present your case at the time of the audit to offset any additional tax.
Amending a tax return
While finding an error or omission on your tax return can be unsettling, rest assured that there are ways to fix the problem. However, it is often worth taking a balanced approach to determining the best solution. Contact RRBB Advisors to review your situation.
Get free tax planning and financial advice