Did your client forget to include income from their side hustle on their return? Or perhaps you realized you left out a credit they qualify for? Fortunately, filing an amended tax return will set everything straight. To make sure you’re equipped to rectify incorrect returns quickly, here’s what you should know about amended tax returns and how to file them.
What is an amended tax return?
An amended tax return is a modified or corrected version of an original tax return that has already been filed with the IRS. This process allows taxpayers to correct errors, omissions, or changes to their financial situation that occurred after the initial filing.
How to amend a tax return
No matter what changes you’re making to your client’s return, all amended tax returns start with Form 1040-X,Amended U.S. Individual Income Tax Return. Instructions for the form offer details on different types of amendments, but in general, you’ll follow these four steps:
- Figure amounts on Form 1040-X
On the first page, you’ll fill out several sections on your client’s Income and Deductions; Tax Liability; Payments; and Refunds or Amount Owed. In each section, there are three columns: one for the amounts entered on the original return, one for the net change, and one for the new amount. For example, if the original itemized deduction amount was $34,000, but you found an additional, $4,000 in deductions, you would enter $34,000 in the first column, $4,000 in the second, and $38,000 in the third. Part I has a similar three-column format and allows you to correct the number of dependents claimed on the return.
- Explain the changes
Part III of Form 1040X leaves room for a concise narrative explanation of the changes. The explanation can be very brief (see below for some reasons you might include) but should be clear.
- Attach supporting documents and updated forms & schedules
Along with Form 1040-X, you’ll need to include any necessary supporting documents, such as new W-2s, 1099s, or other tax forms. This might happen if a workplace needed to resend corrected versions of these documents or if they didn’t provide them until after your client had already filed their original return.
You’ll also need to include the updated versions of any forms or schedules that were affected by the tax return amendments, such as a new Form 1040 if you updated the number of dependents or a Schedule A if you updated itemized deductions.
- Submit the amended return through your tax software
Previously, Form 1040-X could not be submitted electronically through a tax filing software, but this changed in 2019. Now, you may submit amended returns through any tax software that supports Form 1040-X such as TaxSlayer Pro. (We offer detailed instructions on filing amended returns through your TaxSlayer Pro software.)
While filing 1040-X won’t speed up the IRS’s processing time of roughly 20 weeks, it does make it significantly easier to attach supporting documents and maintain organized electronic records. You can help your client monitor the status of their amended return with the Where’s My Amended Return? feature from the IRS website.
Reasons you might file an amended tax return
Note that you do not need to file an amended tax return for small, clerical errors (such as misspellings or small miscalculations). The IRS states that it will handle these corrections itself and send an updated tax bill if necessary or send a reject code. Instead, Form 1040-X should be used for larger omissions or mistakes such as:
- Income reporting errors – Correcting mistakes in reporting income is one of the most common reasons for filing an amended return. This could include omitted income or errors in reporting investment income.
- Filing status changes – Only correct the filing status if it was entered incorrectly on the return, not if the status has changed since the time of filing. For example, if your client is recently divorced but was still married during the tax year in question, they should not amend their filing status to single.
- Change in dependents –You may need to update dependents if your client didn’t claim an eligible dependent or claimed a dependent they were not eligible to claim.
- Correcting credits or deductions – If your client discovers they missed out on eligible credits or deductions, filing an amended return allows them to claim these benefits and potentially receive a refund. Similarly, if they inadvertently claimed credits or deductions they were not eligible for, they can correct the mistake and pay an additional tax due.
Is there a penalty for filing an amended tax return?
Fortunately, there is no penalty for filing an amended tax return. However, there are still penalties and interest for underpayment and late payments. Therefore, it’s best to file the amended return and pay any additional balance as soon as possible.
Amended tax return time limits
Amended returns must be filed within three years from the date the original return was filed or within two years from the date the tax was paid, whichever is later. If your client filed their return early (for example, in February), the date of filing is still considered the tax deadline (usually April 15).
While exceptions to this time limit are rare, the IRS may grant additional time if your client is in a combat zone or is affected by a federally declared disaster.
Can I amend a tax return from 5 years ago?
No. Unless your client qualifies for a rare exception (see above), they must file their amended return within three years from the original date or within two years of the date the tax was paid.
In conclusion
While every tax preparer and taxpayer hope to get the return right the first time, sometimes errors and omissions are unavoidable. Filing an amended tax return with Form 1040-X lets you correct the mistakes as soon as possible.
For specific questions on completing your client’s amended returns, see the IRS’s FAQ page or Instructions for Form 1040-X.
Finally, to sharpen your skills and avoid errors that may lead to a need for amended returns, check out our new Practice Tax Returns with answers keys!
