Is It Always a Good Idea to Amend Your Tax Return?

Your tax return is filed and you’ve even received your refund check. Naturally, you had hoped to be done with taxes for another year. But what do you do if you discover a mistake on your return? Should you file an amended return? Depending on a few circumstances, filing a 1040X may not end up working in your favor. Before you decide to amend your tax return, here are some things to consider.

If You Are Due a Tax Refund

If a correction will result in a substantial additional refund, usually your best option is to file the amended return. However, there some caveats:

  • Extra Paperwork: Amending your current tax return may require you to amend previous returns. Even a minor change may require you to report changes in other tax years, which may not be worth the hassle.
  • Even More Paperwork: A change to your federal tax return could require you to file an amended state or local tax return, which may not necessarily work out to your benefit.
  • Delayed Results: The review process can take can take a very long time. In extreme cases, the IRS can take up to a year and a half to process amended returns.
  • Potential for an Audit: Amending a tax return could put a spotlight on your return. Amended returns based on things like the Earned Income Tax Credit (EITC), small business income, and the Research Tax Credit could result in extra IRS scrutiny. You will need to make sure you have the necessary records to substantiate your amended return.
  • Extended Audit Review Period: Federal tax returns are subject to audit for three years after the original tax return due date or the date the return was filed, whichever is later. If you file an amended return, the IRS could extend the audit review period. The refund also resets the IRS erroneous refund recovery statute, adding two to five years of possible review based on the date of your latest tax return refund.

If You Owe Additional Taxes

If you discover errors on your tax return that will result in an additional tax obligation, you are required to correct the errors and file an amended tax return, along with the amount due.

If the IRS discovers your tax error before you do, they could add interest and penalty fees. The sooner you file the amended return and pay the tax that is the due, the better.

Finding an error on your tax return can be unsettling, but rest assured there are ways to fix the problem. Contact Cray Kaiser today to determine the best solution for you.