Reasons to file an amended return
When should you file an amended return? That’s Form 1040-X, the amended U.S. individual income tax return.
There are certain incorrectly reported items or omissions that necessitate filing an amended income tax return. These include:
- Filing status correction.
- Incorrect number of dependents or exemptions.
- Failure to claim tax deductions or credits.
- The realization that you were ineligible for a deduction, credit, or expense that was claimed.
- Additional information received that requires inclusion. For example, you may not have received a 1099 and didn’t include it in your filing. Perhaps an information statement was sent to you with corrections for the income or withholding amounts.
Keep in mind that clerical mistakes and math errors do not require filing an amended return. Those errors are generally corrected by the Internal Revenue Service. If you owe more tax, the IRS sends a bill. If you overpaid tax, the IRS sends a check. If the business failed to file a required form or schedule, the IRS will notify you via U.S. mail.
How long do you have to file an amended return?
You should file your amended return as soon as the issue is detected. However, the IRS gives businesses three years from the date of filing the original return to file an amended return, or two years from the date on which the tax was paid— whichever date is later.
As anxious as you may be to get any mistakes corrected, you should always make sure the IRS received and processed your original return before filing an amended return. You don’t want any confusion between the original and amended tax return.
Already received your tax refund check? That’s confirmation right there that your original return was processed.
What penalties and interest will you owe if additional taxes are due?
If taxpayers fail to pay the additional tax due on Form 1040-X within 21 calendar days from the date of notice and demand for payment, the penalty is generally ½ to 1 percent of the unpaid amount for each month or partial month that the tax remains unpaid.
The penalty can include as much as 25 percent of the unpaid tax. This applies to any tax liability on the return, and is in addition to late payment interest charges. The penalty may be waived if you can show a reasonable cause for not paying your taxes on time.
Note that if the amount of tax is $100,000 or more, the tax payment’s due date will be within 10 business days from the date of notice and demand for payment.
How to file an amended return
Step 1: Collect all relevant documents
Along with your original tax return, include any relevant new documents necessary for making corrections. For small business owners, that most likely includes a stray 1099 form for reporting additional income.
If you realized you failed to take a charitable deduction or tax credit, you’ll need the charitable donation receipt or documentation for the related credit. For instance, Form 1098-T, a tuition statement, is needed to claim an education credit.
Step 2: Obtain the right forms
Solopreneurs or sole proprietors must file Form 1040-X when amending their return. Enterprises with other business structures, like C corporations, S corporations, and multi-member LLCs, must file the applicable form for their business type (you can find those toward the end of this article).
Along with Form 1040-X, you must include any other forms that are being affected by your changes. For instance, if you forgot to submit dividend or interest income, you must add Schedule B with your submission. Are you changing business revenues or expenses? For that, you’ll need to include Schedule C and Schedule CE.
Step 3: Fill out Form 1040-X
Form 1040-X contains three columns. To fill out column A, have your tax return handy. This is where you enter the numbers previously reported on the tax return.
Complete column B by entering the amounts that differ from your original tax return, whether those amounts increase or decrease. Column C shows the correct amount of tax owed or overpaid. Simply add the amounts from columns A and B to arrive at C.
Step 4: Additional completion requirements
Section III of Form 1040-X requires an explanation of why you are filing an amended tax return. This is where you’ll document the mistake you need to correct.
Finally, make sure to sign your amended tax return! Without a signature, the amended return is invalid. If you are married and filed jointly, your spouse must also sign the amended return.
As per the IRS, anyone paid to prepare the amended tax return must also sign it. This person must also include their Preparer Tax Identification Number (PTIN) in the appropriate space.
You must receive a copy of the return from the preparer for your records. Note that if someone prepares your return but doesn’t charge you for the service, like a friend or family member, that person does not need to sign it.
Step 5: Assembling the return
The IRS is strict when it comes to the way an amended tax return is assembled. There is an Attachment Sequence No. shown in the form or schedule’s upper-right corner. Arrange your supporting documentation in the same order as the schedules or forms they support, attaching them last. Do not attach copies of your original return, correspondence, or any other items unless specifically required to do so.
When to fill out Form 1040-X
You may notice that this also the form used for amending an individual tax return. Sole proprietorships and single-member LLCs use this form because they’re not taxed separately—instead, their business profits are “passed through” the business and taxed on the owner’s personal return (known as “pass-through” taxation by the IRS).
Since sole proprietors and single-member LLCs report business profits on their personal income tax returns, they may also need to use Form 1040-X to amend personal items. This could include issues like a filing status correction, or claiming an ineligible dependent.
A separate Form 1040-X is required for each year in which you are amending your return. If mailing the forms, send prior-year forms in a separate envelope. Check the box at the top of the form to show which year is being amended.
If other forms and schedules require changing, attach them to Form 1040-X when filing. Failure to include these forms and schedules will result in a processing delay.
Something to keep in mind: If you must amend your federal return, it is likely you must also amend your state tax return.
You can download all forms from the IRS website.
How to file Form 1040-X with the IRS
As of 2020, you may e-file Form 1040-X. You may also send the form in the mail to the address listed for your state.
Forms for other business structures
If your business structure is not a sole proprietorship or single-member LLC, you cannot file a Form 1040-X for an amended return. Instead, file the following tax forms based on your business formation:
How filing an amended return affects tax refunds
What if you expect a refund from your original tax return? In that case, don’t file an amended return until you receive the refund. You can even cash the refund check without worry. If you are amending your return because you discovered you were entitled to an additional refund, you will eventually receive the amount owed.
What comes next?
If you owe tax after completing your amended return, you can include a check with the return if filing by mail. If filing electronically, the IRS provides various payment options. These include credit cards, debit cards, or digital wallets such as PayPal. Paying the tax immediately limits your interest and penalty charges.
It can take up to 16 weeks for the processing of an amended return. Check the status of your amended return by using the IRS’s online tracking tool. You can also call 866-464-2050 three weeks after the amended return is filed.
To track your amended return, you must provide your Social Security number or Employer Identification Number (EIN), as well as your birthdate and zip code.
If you do not hear anything from the IRS after 16 weeks, contact the IRS to determine the status of your amended return.
Who pays for filing an amended return?
Due to errors, you could end up paying more in tax or interest and penalties after filing an amended return. Who pays for that? That depends on several factors.
If your accountant or tax preparer filed your tax return, but your business did not supply them with the correct information, expect to be charged for additional work. If the tax professional made the error, whether or not your amended return is filed without charge all comes down to how your client agreement is worded.
How Bench can help
We’re America’s largest professional bookkeeping service for small businesses! We can handle your bookkeeping and tax filing for you while you focus on running your business.
Bench clients receive clear, up-to-date financial statements each month, plus a free tax-ready Year-End Financial Package. We can even handle your tax filing for you, all of which can help decrease the chance that you’ll need to file an amended return.
Amended return considerations
What if the IRS disagrees with the changes to your amended return? In that case, it will send you a denial letter. If you receive a Notice of Claim Disallowance, either Letter 105C or 106C, this serves as legal notice that the IRS is not allowing the claimed credit or refund in your amended return. The notice includes why the IRS made its decision, the decision date, and the denial’s tax year or period.
Your options after receiving a denial letter are either appealing the IRS decision or challenging the denial in court.
Filing an amended return doesn’t need to be cause for alarm. By following these steps, you can ensure your return is corrected and processed in a timely fashion, so you can get back to growing your business.