2006 CCH Whole Ball of Tax
Amended Returns Offer Taxpayers a Second Chance
(RIVERWOODS, ILL., January 2006) – Taxes can be better the
second time around. When a change in the law or an overlooked deduction tilts
the tax situation in your favor, an amended return can put cash in your pocket.
Even if you’ve received – and spent – a refund, it may not be too late to
go back for more, according to CCH, a Wolters Kluwer business and a leading
provider of tax and accounting information, software and services (tax.cchgroup.com). You can usually get
all that’s coming to you by filling out and filing Form 1040X. And even if
a change to your return costs you, paying a few dollars of extra tax voluntarily
with an amended return is preferable to having the IRS on your tail.
Amended returns not only correct mistakes but can open up
previous years’ taxes for adjustment, according to John W. Roth, JD, CCH
federal tax analyst.
“An amended return is the taxpayer’s way to correct an error,
add something that’s been left out, change a previous return to reflect a
loss or change a choice that the taxpayer made on a return. If the change
is in the taxpayer’s favor, the amended return also acts as a request for
a refund,” Roth said.
“In cases of natural disaster, an amended return can expedite
tax relief for losses,” Roth added. “This aided many victims of last year’s
hurricanes.”
Some mistakes and omissions don’t require you to file an amended
return, however. The IRS will usually correct any math errors and either
send you a refund or a bill for any resulting difference in your tax. If
you forgot to attach a form or schedule, the IRS will ask you for additional
information.
Amended Returns Offer Second Chance
A forgotten deduction or piece of income is one of the most
common reasons for filing Form 1040X, but an amended return also can be used
to clear up a tax picture that wasn’t previously certain.
Suppose it’s January, bills have piled up, and when you take
a first look at your taxes, it seems that you’re due a refund that will cover
them. One of your itemized deductions will be for state income tax. But you
might be due an even bigger refund if you took the deduction for state sales
taxes instead. (You can’t take both.) The problem is, it will take some time
to sort through all your records to see if you’ve saved enough receipts to
make the sales tax deduction worthwhile.
To cover your immediate needs, you can file your return right
away, claiming the income tax deduction and using the refund to meet your
immediate needs. At a later date, you can add up all your receipts and, if
the sales tax deduction produces an even larger refund, you can file Form
1040X to claim the difference.
Time to sort things out can also be an issue when you need
to determine that a stock actually became worthless – or a debt became uncollectible
– in a previous tax year. These also are situations that can be addressed
through amended returns.
Use Amended Returns to Make, Change Elections
Amended returns are also a common way of making or changing
a tax election – a choice of tax treatment. Dozens of elections are available
relating to business, farming, foreign income, residency status and other
special situations.
For example, if one spouse is a nonresident alien, 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.
“Taxpayers will have to do some research or consult a qualified
tax advisor to learn how long they have to make or change an election by
filing an amended return,” Roth noted. “Sometimes they have up to three years
from the original due date of the return, sometimes up to the original due
date plus extensions, sometimes only up to the due date without extensions.”
Changing Filing Status
Amended returns are usually required when a couple has their
marriage annulled. 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.
“This is a rare circumstance in which people who have filed
a joint return can change their filing status,” Roth said. “Normally, after
a joint return has been filed, the filing status can’t be changed – for example,
to married filing separately – unless the amended returns are filed before
the due date for that year.”
If a couple has filed jointly but wants to change to married
filing separately and the filing deadline hasn’t passed, the two spouses
must take two different paths. The spouse whose Social Security Number appears
first on Form 1040 files a Form 1040X. The other spouse files a new Form
1040.
Amended Returns for Losses
Amended returns can also come into play if casualty losses
occur in an area determined by the President of the United States to be a
“disaster area.” In this case, a property owner can elect his or her losses
in the year immediately before the tax year when the disaster occurred.
This allowed some taxpayers who suffered losses in the 2005
hurricanes, for example, to get some quick relief by applying their loss
to their already-paid 2004 tax bills and getting refund checks. By contrast,
taxpayers with 2005 casualty losses outside of presidentially designated
disaster areas have to wait until they file their 2005 returns to see their
tax relief.
Business losses can also give rise to amended returns. 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 can produce a refund.
“If you carry back a loss, you also have to recompute any
deduction you took that was tied to adjusted gross income, such as the deduction
for medical expenses," Roth observed.
Amended Returns Not Electronic
While an amended return allows you to bring your tax status
up to date, the actual process of filing takes you back to an earlier era
of IRS processing and service. Form 1040X is one of the few that can’t be
filed electronically. Your tax software may allow you to fill out and print
the form, but you’ll have to send a paper copy to the IRS. It can take the
IRS 12 weeks to process the form, and don’t bother calling the automated
tax line for a quick check on the progress. You must call the live-answer
line, 1-800-829-1040, instead. If you’re due a refund, look for your check
in the mail. Electronic deposit is not available when you file an amended
return.
“There’s certainly a benefit to getting things right the first
time around, but it can be worth the wait when an amended return puts money
back in your pocket,” Roth noted.
About CCH, a Wolters Kluwer business
CCH, a Wolters Kluwer business (tax.cchgroup.com)
is a leading provider of tax, audit and accounting information, software
and services. It has served tax, accounting and business professionals and
their clients since 1913. Among its market-leading products are The ProSystem fx® Office, CCH® Tax Research NetWork™, Accounting
Research Manager™ and the U.S. Master Tax Guide®. CCH is based
in Riverwoods, Ill.
Wolters Kluwer is a leading multinational publisher and information
services company. Wolters Kluwer has annual revenues (2004) of €3.3 billion,
employs approximately 18,400 people worldwide and maintains operations across
Europe, North America and Asia Pacific. Wolters Kluwer is headquartered in
Amsterdam, the Netherlands (www.wolterskluwer.com).
Its depositary receipts of shares are quoted on the Euronext Amsterdam (WKL)
and are included in the AEX and Euronext 100 indices.
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