It’s not a great idea to amend tax returns needlessly. The IRS can only audit you for three years after you file a tax return. When you amend a return, however, you start that three-year clock running again. There may be things that you can no longer prove or that are too complicated to explain.
However, there are some circumstances that may prompt you to amend your return. Here are three of them:
1. You didn’t include a W-2 or 1099 because it came after you filed your tax return. You can file an amended return and pay the additional taxes immediately in order to limit any interest and penalty charges you could accrue.
If you don’t amend your return, the IRS may send you a letter six to 10 months after you file. It will compute the additional taxes you owe and inform you that you can pay those taxes, plus interest. The interest is charged from the due date of the return until the date of payment.
2. You overpaid your taxes. If you filed your 2013 taxes and then found better information about deductible expenses or better proof of the basis (tax cost) of something you sold, you should definitely file an amended return. Wait until all information surfaces that might affect this tax return so you only need to amend it once.
3. You had a substantial net operating loss this year and did not include a statement saying that you wanted to waive the carryback period. Here, you have two choices. You can make that election by filing an amended return within six months of the due date of the original return. For example, if you filed in February, you may amend your return until six months after April 15. You may want to waive the carryback if you’ve paid no taxes in the past or if you don’t want to open up previous years’ returns to an audit.
On the other hand, you have the option to use the carryback and get your refund quickly. File Form 1045 by December 31 of the year in which you filed the original return. It has columns to compute the refunds for each of the two prior years. IRS Publication 536 takes you through this, step by step.
How do you file a regular amended return?
Use Form 1040X. Attach a copy of the relevant pages of the original tax return, marked “original,” and a copy of the relevant pages of the revised tax return, marked “amended.” Often, your tax software company can help you with this, and you may even be able to file it electronically.
Be sure to include any pertinent documents or calculations with the 1040X. A person, not a computer, will process the form. Think of this as a mini-audit. It will take about four to six months to get your refund, but follow up with the IRS after 60 days to make sure it has received your amended return. You can make this easier by using its new tool: Where is my amended return?
How to avoid making mistakes on your return
To avoid making mistakes on your tax return in the first place, get ready well before the return is due. Identify all of your income sources—including jobs, side businesses, securities sales, and dividends—and all of your expenses, including mortgage interest, charity, and medical expenses.
(Read more: Filing Taxes: Oops! I Made a Mistake!)
There’s no reason not to get organized all year long. There are many apps and tools to help you, so it’s easy to track your information throughout the year.
Before filing your tax return, look it over thoroughly. If you don’t understand something, ask your preparer. If you used software, ask tech support. Try not to file the tax return unless you have all of the answers you need first.
If you have run out of extensions and are still missing information, though, file the tax return and make your best guess about the missing numbers. You have up to three years to file an amended return and give the IRS and state the correct information. Doing this helps you avoid the hefty 5 percent per month late filing penalties.
Eva Rosenberg, EA is the publisher of TaxMama.com ®, where your tax questions are answered. She is the author of several books and ebooks, including Small Business Taxes Made Easy. Eva teaches a tax pro course at IRSExams.com and tax courses you might enjoy at http://www.cpelink.com/teamtaxmama.