What To Do Now To Avoid Amending Your Tax Return
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Here's your money briefing for Wednesday, January 8th. I'm J.R. Whalen at The Wall Street Journal in New York. We're just a few days into the new year, and those footsteps you hear are Uncle Sam's. In the next few weeks, year-end income statements will be arriving in the mail. Not long after that, it'll be time to prepare your tax returns. What's worse than doing your taxes once, having to amend your return because you made an error, and send it into the IRS again.
In many cases, people forget to include important deductions or credits or some other tax breaks, or maybe they've forgotten to include some income that they received. Or sometimes after you file, you get a revised form from some financial institution saying, oh, we made a mistake on how much we gave you before on your form. Here's the revised form.
That's Wall Street Journal contributor Tom Herman. He's got tips on what to do now to avoid having to make corrections later on your tax return. That's coming up.
Even with the widespread use of sophisticated tax preparation software, it's easy to make costly errors and omissions on your tax return. Wall Street Journal contributor Tom Herman is here to explain how to avoid having to send in an amended return and whether you should inform the IRS at all if you notice you made an error. So, Tom, based on IRS statistics, lots of people are still having to go back and redo parts of their tax returns.
That's right. If you have to redo your tax return, you have plenty of company. The IRS told me that they received about three and a half million amended returns last year. And it's roughly been in that neighborhood for each of the past few years, too. It's very easy to make mistakes on your tax returns or to omit items that you don't discover until later. One person once said, even if you fill out your tax return on a level, sometimes you don't know when you're done if you're a crook or a martyr.
What are some of the most common reasons for amending a tax return?
In many cases, people forget to include important deductions or credits or some other tax breaks, or maybe they've forgotten to include some income that they received. Or sometimes after you file, you get a revised form from some financial institution saying, oh, we made a mistake on how much we gave you before on your form. Here's the revised form. And that can often trigger an amended return.
And it's not up to the IRS to notice errors or report errors back to you.
The IRS says it will catch routine math errors. Some tax experts I spoke to said, yes, that's usually true. But if you discover a significant math error, don't count on the IRS computers catching it. Consider filing an amended return depending on the facts of the case and how large the amount is.
What is the threshold for having to amend a tax return?
What would be too negligible of an error?
Let's say you get a form from a financial institution showing a very small change in what the institution originally told you that you got in dividends. For instance, supposing you got a form showing you got $10 less in dividends than you were originally told. In that case, you have to ask yourself, does it really pay to amend your return and go to all the hassles involved? When it's a tiny amount, the refund difference would be very small. In that case, tax experts have told me you can probably skip it. However, if it's a significant increase and you owe the IRS a lot of money, then you do want to fix it.
Otherwise, you could face interest and penalties.
And if you use the tax software programs to do your taxes, if you have to amend your taxes and file an amended tax return, you have to do it the old-fashioned way.
Surprisingly, the IRS wants everybody to file electronically, but surprisingly, they won't let you amend a tax return electronically. You do have to do it the old-fashioned paper way.
So you would go to the IRS website and download the right form?
That's right. You go to the IRS website, irs.gov, and download form 1040X, and you have to fill out the form and send it back to the IRS.
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