Every year, millions of Americans amend their tax returns. In many cases, this is due to careless mistakes such as forgetting to include information, receiving new information, or simply making a math error. Although these mistakes are less common in clients who have accountants handle their taxes, it still happens. However, filing an amendment is not always necessary, and in some cases may not be a good idea.
The Case of the Incorrect Return
Technically, it is never too early to amend your tax return. In reality, however, doing so too early can cause confusion. The IRS is clear that any amendments filed before the due date – even an extended one – will not be penalized. Instead, these are considered a superseding return and legally should be treated as if the original was never filed.
However, the issue is not always this simple. The IRS is easily confused – something that will surprise no experienced accountant. They may not understand which return is the original and which is the new and accurate one. Sometimes it pays to wait and file an amendment after Tax Day.
Reasons NOT to Amend Your Tax Return
Filing an amended return is not always necessary, even if the return has errors. Some people are tempted to amend due to simple arithmetic errors. However, the IRS will correct these on their own when processing a return with no encouragement needed. Omitting information such as a W-2 or a schedule also is not always a reason to amend your tax return. As long as the information from these documents was included in the return, the IRS will simply ask for any missing documents.
When should an amendment be filed? In most cases, this should be reserved for times when relevant information was not reported or incorrect information was reported. In this case, you can file a 1040X within three years of the date of filing the old one or two years after payment, whichever is the latest. Although clients are not required to amend, it is highly encouraged.
To amend or not to amend your tax return? Making the wrong decision can lead to confusion and investigation so it is important to give the right advice. This is a case where quality accounting help can save your clients a great deal of trouble.
