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Eric Scott
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eric.scott@wolterskluwer.com

Tax Filing Regrets Already? CCH Outlines Four Reasons to File an Amended Return

(RIVERWOODS, ILL., April 30, 2013) – While most people think once is enough when it comes to doing taxes, there are times when filing an amended return can save taxpayers money and even future IRS run ins, according to CCH, a part of Wolters Kluwer and a leading global provider of tax, accounting and audit information, software and services (CCHGroup.com).

“It’s not uncommon for people to receive adjusted 1099s, for example, from their brokerage or mutual fund companies that change their income, or to realize after the fact that they didn’t take a deduction that could have reduced their taxes,” said CCH Principal Federal Tax Analyst, Mark Luscombe, JD, LLM, CPA. “Amended returns offer taxpayers a second chance to set the record straight.”

Below, CCH outlines four situations where taxpayers should consider filing the Amended U.S. Individual Income Tax Return, known as Form 1040X.

1. Changing Deductions and Credits

The tax code is complex with hundreds of deductions and credits. Some taxpayers may mistakenly take a deduction they were not allowed, overlook a credit they could have taken or choose one deduction when another may have been better.

For example, a taxpayer may take a deduction for either their income tax or for state sales taxes, but not both. A taxpayer who took the income tax deduction but later added up all their sales tax receipts and realized the state sales tax deduction could have lowered their taxes significantly can file Form 1040X to claim the difference.

Additionally, sometimes people may not remember a deduction they are allowed. For example, a taxpayer making charitable contributions by payroll deduction could forget they signed up for this.

“Charitable contributions made by payroll deduction would appear on the taxpayer’s W-2 as ‘other,’ and could be overlooked by the taxpayer,” said Luscombe. “For any single contribution of more than $250, the taxpayer would need to furnish a pledge card from the organization; amounts less than that would just require a pay stub or W-2.”

2. Correcting Wages and Income

Wages and salary are reported on W-2s and income from stocks, dividends, interest and other various sources of compensation are reported on 1099 forms. If you overlooked income or, for example, your employer or brokerage firm sent you a revised form that increased or decreased your income, you need to file an amended return.

“W-2s and 1099s are shared with the IRS,” said Luscombe. “If you failed to report income, even if you didn’t know about it until after you filed, you are still required to pay the outstanding taxes owed and may also be subject to interest and penalties.”

3. Revising Filing Status

There are certain instances where a taxpayer may want to file an amended return to reflect a filing status change. Typically, a couple filing jointly that later decides they want to file separate returns only has until the tax due date to file the amended returns. An exception is for annulments. Unlike a divorce decree, an annulment looks backward and undoes a marriage from its beginning. Since unmarried couples don’t qualify for joint filing status, any joint returns filed for prior tax years have to be “undone” by the filing of amended returns as single filers. Each individual needs to file amended returns for the “open years,” which are the three previous years in which the IRS can audit your tax return.

Taxpayers filing separate returns who later decide they should have filed jointly have up to three years in which to file amended returns. One instance where an amended return may make sense is where one spouse is a non-resident alien. In such instances, a couple normally cannot file jointly, but they can elect that status for a year in which the spouse becomes a U.S. resident. If they do not do so on their original return, they can do so on an amended return. However, if they do choose to do this, the non-resident alien must report their worldwide income.

4. Reporting Losses

Amended returns also can be used in some instances by disaster victims to speed up relief by applying their losses to already-paid taxes. This applies when someone has suffered a casualty loss in an area determined by the President to be a “disaster area.” In such instances, a property owner can elect to take his or her losses in the year immediately before the tax year when the disaster occurred. As such, they can file an amended return rather than waiting until the next tax filing season to receive any potential refund.

Taxpayers with business losses may also benefit from filing an amended return. Usually, a net operating loss can be carried back to the previous two tax years and carried forward to be applied against income in the succeeding 20 years. Carrying the loss back may generate a refund.

“Carrying back a loss has a lot of twists and turns,” Luscombe cautions. “If you carry back a loss, you must also recalculate any deductions you took or credits you claimed that were tied to adjusted gross income. This could include a deduction for medical expenses or miscellaneous itemized deductions.”

No Need to Amend Return for Common Mistakes

While there are many instances where filing an amended return can be helpful, taxpayers generally do not need to do so simply to correct math errors. The IRS will make the correction and send you a bill or a refund for the resulting difference in your taxes. Additionally, if you forget to attach a form or schedule, the IRS will request you send them the information.

When and How to File Form 1040X

Generally, taxpayers have up to three years from the date they filed their original return to file their amended tax return, or two years from the date they paid the tax, whichever is later.

Form 1040X can be completed and downloaded from the IRS website. However, it is one of the few forms that can’t be filed electronically. You will need to print and mail the form to the IRS. Likewise, electronic deposit is not available, so refunds are delivered as paper checks.

It can take up to 12 weeks for the IRS to process amended returns. However, three weeks after filing, taxpayers, can begin tracking the status of their Form 1040X electronically using the IRS’ “Where's My Amended Return?” site, or by calling the IRS at 866-464-2050. It is generally a good idea to not file an amended return too quickly following filing of the original return; otherwise, there is a danger that the IRS will process the amended return first, which will create problems with how the IRS interprets the returns.

“Taxpayers amending their federal tax return also need to look at how any changes may affect their state income tax liability and, if needed, file an amended state return as well,” said Luscombe.

About CCH, a Wolters Kluwer business

CCH, a Wolters Kluwer business (CCHGroup.com) is the leading global provider of tax, accounting and audit information, software and services. It has served tax, accounting and business professionals since 1913. Follow us on Twitter @CCHMediaHelp. Wolters Kluwer (www.wolterskluwer.com) is a market-leading global information services company. Wolters Kluwer is headquartered in Alphen aan den Rijn, the Netherlands. Its shares are quoted on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices.

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