What Happens If You Make a Mistake on Your Taxes?

You just filed your income tax return for last year before the April 15th due date. What a terrific feeling — until you realize you made a mistake. Maybe you forgot to claim the child tax credit, or you opted for the standard deduction when you should have itemized.

What should you do now?

Don’t worry. The Internal Revenue Service (IRS) has a specific amended tax return form for voluntary disclosure of scenarios like this. Depending on the circumstances, making a correction can be painless. However, if going this route raises concerns for you, consider speaking with a tax attorney who can help you understand your options.

Millions of taxpayers use IRS Form 1040-X to submit amended tax returns each year. In this article, we’ll review some of the basics behind amending your return to fix an error so that you can best determine your next steps.

Amended Returns

IRS Form 1040-X allows you to correct errors such as missed deductions, incorrect filing status, and forgotten income. Typically, you’ll have three years from the filing date of your return to submit this amendment form.

If you’re within this timeframe and your tax return mistake is one that can be corrected on Form 1040-X, you may want to consider filing an amended return.

Taxpayers can use the form for several types of common mistakes on their original tax return. This may include:

• Expense, deduction, or credit error
• Wrong filing status
• Modification of dependents
• Incorrect taxable income

If you receive a corrected tax form like a W-2 or 1099 after you’ve filed your taxes, you can also use Form 1040-X to update the information you initially entered on your return.

Negligence

You may have more to think about if negligence played a part in the error.

In the context of tax filing, negligence refers to the failure to make a reasonable attempt to comply with tax laws or to exercise ordinary and reasonable care in preparing a tax return.

If the IRS determines that a taxpayer’s underpayment was due to negligence, it can impose a 20% penalty on the underpayment.

If the negligence was on the part of a tax professional, you may be able to avoid penalties since you didn’t prepare your own taxes. However, you’ll still likely be responsible for additional taxes owed.

In cases of taxpayer negligence, the IRS may be willing to reduce potential penalties with voluntary disclosure and correction of the mistake. It will generally consider your intent and any patterns of errors.

If the IRS uncovers tax fraud, however, the criminal penalties are far more severe.

When Not to Use Form 1040-X

There are several scenarios where you may have made errors but don’t even need to decide whether to file an amended return.

Math Errors

The IRS usually corrects simple math errors during processing. As such, you don't need to file an amended return for these.

Missing Forms/Schedules

If you forget to attach a required form or schedule, the IRS will typically request it from you. You don't need to file Form 1040-X in this case.

Corrections by the IRS

The IRS may have noted the error or discrepancy and already made changes to your return. If that’s the case, you don't need to file an amended return for those corrections.

Bank Account Changes

If you need to change your direct deposit information after filing, you can't use Form 1040-X. Instead, contact the IRS directly.

Important Considerations

If you plan to proceed with an amended return, you’ll want to keep a few things in mind.

Notices and Processing

After you file your amended return, the IRS may take up to 16 weeks to process it. You’ll likely receive a series of IRS notices acknowledging receipt of your amendment and providing you with status updates.

Refunds/Payments

If your amendment results in a larger tax refund, the IRS will send you the additional money after processing your amended return. However, if you owe additional taxes, you’ll likely want to satisfy the additional tax liability as soon as possible to avoid or lessen interest and penalties.

Multiple Tax Years

If the error affects more than one tax year, you'll need to file separate amended returns for each year. The timeframe restriction typically still applies.

Tax Preparation Software

You can now usually e-file most amended returns. Maintaining electronic records of your taxes can make e-filing an amended return much easier. Similarly, tax software like TurboTax and others can facilitate the preparation of your amended returns using your saved tax information from previous years.

Business Entities

Depending on company structure, a small business that’s a sole proprietorship can usually use Form 1040-X. Other entities, like partnerships, S Corporations, and C Corporations need to amend returns using different IRS forms.

Impact of Amendments

Remember that correction of certain errors may require your attention. For example, changes to your taxable income can affect your tax bracket. Also, self-employed individuals will often need to adjust Schedule SE if their amendment adjusts income, expenses, or both.

State Tax Returns

Similarly, amending your federal tax return might mean you need to amend your state tax return, too. State rules for amendments can vary, so check with your state's tax authority for guidance.

Getting Legal Advice

If you’re aware of an error on a return you’ve already filed, you may have options. One of them is to file an amended return. This may be your best course of action for fixing tax issues before they become tax problems.

But if you’re still not quite sure how to proceed, consider speaking with an experienced tax attorney in your state. You can share the specifics of your situation with them, enjoying a higher level of confidentiality than with other tax professionals. They also tend to be skilled at negotiating with the IRS and can potentially secure a more favorable outcome now or with tax tips for the future.

Findlaw’s directory of dedicated tax attorneys can make finding the right advocate manageable. Just click on your state to view contact information and reviews for local experts. You can also narrow your search results by city. 

Ensure you're making informed decisions by consulting with a local professional about your tax concerns.