Did you just realize you made an error on your income taxes? You’d be surprised how often this happens in American households throughout the country. It’s not the end of the world, take a deep breath!
Your first reaction might be to think about the harsh consequences that follow, but those are only there for legitimate (or in this case illegitimate, get it?) fraudsters. Clear your mind and relax. There are steps put in place for this very reason, all you have to do is follow them and that’s it, crisis averted!
Recognize Common Tax Mistakes
Financial advisers get these sorts of questions all the time. You’d be surprised how many errors slip through. These things happen mainly due to stress. We’re often so hard on ourselves to get everything right that we completely miss typos, forget to input crucial information, etc.
Some of the most common errors involve inputting your wrong Social Security number, math mistakes, transposed numbers, neglecting to report income, misinterpreting tax law, forgetting about certain pieces of information, omitting forms, or taking credits for which you don’t actually qualify.
In terms of math mistakes, you can use your tax software program to automatically upload information from your W-2 or, additionally, other tax forms to the program. By doing this you can spend more time focusing on other tasks.
But the best and easiest way to avoid mistakes is to give yourself enough time. You’ll probably need a little break for all the information to settle, then you can go back to your forms and double-check. It’ll be easier to spot errors with a clear mind.
In some cases, you might need an extension, especially if you haven’t received crucial tax forms. This extension gives you until October the 15th, but keep in mind you’ll still need to pay up by Tax Day.
How Can I Fix a Mistake on My Taxes?
Tax form mistakes can be major or minor. The real question is whether you noticed them in time or if the IRS did. If you spotted your errors then you should still have enoguh time to comb through all your documents and information.
If, however, Uncle Sam found your mistakes then you’ll receive a notice which you can also bring to your tax preparer if you’ve worked with one. You may be due an additional refund, you may owe additional tax plus interest… whichever the case, first make sure that the letter is accurate.
If you do have to pay outstanding taxes then it’s recommended that you let the IRS calculate your interest and penalties. The reason for this is twofold. First, you may come up with a different number, leading to either underpayment or overpayment. Secondly, you’ll have a harder time recovering your money if you end up overpaying. The process is more difficult than with regular tax payments.
You’ll need to submit a Form 1040-X in order to correct major omissions, claim recently extended benefits, fix misinterpretations of tax law, etc. Do not file two original tax returns in the same year, as that will complicate the process even more. Instead, rely on the nifty 1040-X to help with any corrections.
It’s always a good idea to talk to a tax professional in these matters anyway. You never know what sort of issues might be waiting on the other side of a fixed mistake if you’re not an expert yourself. For example, you could find yourself in a tricky situation if you report additional income that may impact whether or not you can still claim itemized deductions such as medical expenses.
When in doubt, talk to a professional!
What Is the Form 1040-X?
After you send your original return you can use the 1040-X form as it allows you to correct certain tax documents. Did you forget to add certain informaiton on your original form? Or did you forget to include claiming unused tax credits? Don’t feel bad, you’re not alone. As many as 3 million of these forms are filed each year, so it’s not the end of the world.
You’ll need several things, so make sure you have them on hand before you proceed. Obviously, you’ll need the form itself, a copy of your original tax return, supporting documents, the notices you got from the IRS, adjustments to your income, instructions for the return you are amending.
On the form itself you’ll have enough space to provide information. Here is where you’ll need to explain why you’re amending your return, but don’t write a novel! You should be concise, so don’t go off on unecessary tangents.
Keep in mind you can file the 1040-X form within three years of the date you filed your original return or two years after you paid the tax. Base your response on whichever one of these dates occured later.
Finally, don’t use this form to requiest a refund of penalties or interest, since another form is used for that specific purpose.
Don’t Forget Your State Tax Return
Sadly, if you’ve made a mistake on your federal tax return, you may have made one on your state incom tax return. The latter is impacted by the former. For that purpose, check both of them out in tandem and make sure you haven’t made any mistakes on both.
If, however, you’re too late and you haven’t spotted the mistake in due time, remember that each state has it’s own provisions for filing amended returns, so research your own.
Will I Be Punished for Making a Mistake on My Taxes?
This is one of the most frequent question we heard about the topic, mainly because people expect Uncle Sam to be unscrupulous. What you need to keep in mind is that as long as you’re not comitting fraud, you’re fine.
Mistakes can be fixed and the IRS will give you the chance to fix them in due time. Of course, some situations are more complicated than others, so it’s best to avoid making things worse for yourself by contacting a tax professional!