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CCH can assist you with stories, including interviews with CCH subject experts.
Also, the 2007
CCH Whole Ball of Tax is available in print. Please
contact:
Leslie Bonacum
(847) 267-7153
mediahelp@cch.com
Neil Allen
(847) 267-2179
neil.allen@wolterskluwer.com
Link to special CCH Tax Briefings on key topics from 2006:
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2007 CCH Whole Ball of Tax
Amended Returns Offer Taxpayers a Second Chance
(RIVERWOODS, ILL., January 2007) – Even 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 law information, software and
services (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, LLM, CCH Senior 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.
A Bumper Year for Amended Returns?
Many tax professionals suspect that this may be a bumper year for amended
returns, because some potential deductions – for state sales taxes, teacher’s
classroom expenses and tuition – don’t appear on 2006 tax forms.
They expired at the end of 2005 and weren’t extended, retroactively,
until after 2006 forms had been sent for printing. The IRS is mounting a major
effort to inform people that the deductions are still available and show them
how they should be taken, but Roth is skeptical that the word will get through
to all affected.
“There’s always some poor soul who doesn’t get the message,” Roth
observed. “And when you’re talking about millions of taxpayers,
the numbers of poor souls adds up.”
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 for Military Personnel
Two provisions in last year’s tax legislation give some military personnel
reasons to file amended returns. Those who paid a 10-percent early withdrawal
penalty for withdrawals from their IRAs on being called to active duty in 2002
and 2003 can have the penalties refunded, but they have to file an amended
return by August 16, 2007. Also helped by an amended return will be those who
can now make a contribution to an IRA for tax years 2004 and 2005, based on
excludable combat pay that was not counted as earned income in those years
but now can be for IRA purposes. For tax years 2004 and 2005, military personnel
have until May 28, 2009 to make a contribution and a further year after that,
until May 28, 2010, in which to amend their returns to claim a refund.
Amended Returns Offer Second Chance
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 pay your expenses. 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 2006 in parts of Louisiana,
New York, Indiana, New Mexico and Hawaii to get some quick relief by applying
their loss to their already-paid 2005 tax bills and getting refund checks.
By contrast, taxpayers with 2006 casualty losses outside of presidentially
designated disaster areas have to wait until they file their 2006 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 a 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 (CCHGroup.com) is a leading provider of tax
and accounting law 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 global information services and publishing company.
The company provides products and services for professionals in the health,
tax, accounting, corporate, financial services, legal and regulatory, and education
sectors. Wolters Kluwer has annual revenues (2005) of €3.4 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. Its shares are quoted on the Euronext Amsterdam (WKL) and
are included in the AEX and Euronext 100 indices. For more information, visit
www.wolterskluwer.com.
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