Amended tax return requires some thought
By Sandra Block
When it comes to filing their tax returns, millions of taxpayers are discovering that once is not enough.
The Internal Revenue Service estimates that more than 3.3 million taxpayers will file amended returns for the 2001 filing season, nearly 80 percent more than a decade ago. The most common reasons for filing Form 1040X:
Sins of omission. Filing early and electronically will speed your refund, but you might leave out information if you're not careful. Taxpayers often overlook interest income or stock dividends, particularly when the amounts are small, tax preparers say. Financial institutions are required to mail you the information on a Form 1099, but the letters are often lost.
Reporting errors. Sometimes financial institutions make mistakes and mail corrected 1099s to their customers. Employers also make mistakes, which can result in revisions to your W-2.
Overlooked deductions and credits. Recent changes in the tax laws provided lots of tax breaks for parents, students, low-income workers and others. But some are easy to overlook.
Don't ignore a mistake
If the amount on a stray 1099 is small, it's tempting to ignore it and hope the IRS will do the same. But that's a mistake, tax experts say.
All the information you receive on your 1099 and W-2 is also sent to the IRS. Agency computers match the Social Security number on those forms with the Social Security number on your tax return. If there's a discrepancy, even for just a few dollars, you'll probably receive a letter from the IRS, said Joe Schwartz, an enrolled agent in Santa Rosa, Calif.
"This isn't like rolling the dice on perhaps being audited," Goldberg said. "Your odds that a 1099 or W-2 will be detected are pretty near 100 percent."
It may take several months for the IRS to notify you, but most tax experts advise against waiting to hear from the agency. If you file an amended return by April 15 along with any additional taxes owed, you won't be liable for interest or penalties, said H&R Block tax analyst Kathy Burlison.
You can file an amended return even if you've already received and cashed your refund. Just make sure you include a check for any additional money you owe.
If you file your tax returns on paper and discover you've omitted information, wait a couple of weeks before filing your 1040X, Burlison suggests. Otherwise your amended return could arrive before your original return, "and the system can get pretty confused."
When the IRS owes you
If an error caused you to overpay your taxes, you usually have three years from the due date of your original return to file a 1040X and avoid penalties.
If you overlooked a deduction or credit, filing a 1040X could result in a larger refund or lower tax bill. But it may also increase your chances of an audit, tax preparers say. Amended returns require review by an IRS employee, who compares it to the original return. Any discrepancies could trigger further review by a tax examiner.
If the IRS owes you a small amount, "and you have any hesitancy about your return being looked at otherwise, you probably don't want to reopen Pandora's box," said Joel Goldberg, a certified public accountant with Pincus & Goldberg in Bethesda, Md. "But if it's for a significant amount, you're quite within your rights to file an amended return."
How to do it
Amended returns must be filed on paper. You can download a 1040X from the IRS Web site, www.irs.gov, or order one from (800) 829-3676.
Make sure you write the year of the return you're amending at the top. In column A, write the figures from your original form. Write the corrected figures in column C. Use column B to calculate the difference.
On the second page, explain the changes to your original return. Attach any forms that were revised or weren't included with your original return.
And don't forget about state taxes. Most states use your federal tax information to calculate your state taxes, so filing a 1040X could change your state tax bill.