When Do You Need to Amend Your Business’s Tax Return?

By QuickBooks

3 min read

Mistakes happen. No matter how diligent you are, there’s still a good chance of realizing you made a tax error months or years after you file. You always have the option to amend your business or personal tax return (or both). Amending is not always necessary, but it can be worth it to snag a higher refund.

When It’s Unnecessary

According to the IRS, there’s no need to amend a return due to clerical errors or math errors. You also don’t need to amend a return just because you forgot to include a schedule or a form — if the IRS has a problem with it, they’ll reach out to you and ask for more information.

The IRS does say you should consider amending a tax return if your filing status, income, deductions, or credits are incorrect. However, your obligation to amend a return is still a gray area. In his Forbes.com article, tax lawyer Robert Wood points out that taxpayers are not required by law to file an amended return. If something came to light after you filed the return — like a minor 1099 that arrived late from an investment you forgot about — he believes it’s usually fine not to file an amendment. Still, the IRS may catch the discrepancy and send you an additional tax bill for what you owe.

When You Need to Amend

Although you may not always have an obligation to amend, you are responsible for disclosing income honestly and fully when you originally file a return. Failing to do so can be considered tax evasion, and the penalties can be quite steep. Wood absolutely recommends you amend the return if you knew the information was incorrect at the time you originally filed it.

Amend for a Tax Break

Amending your tax return isn’t always a negative thing. If you missed some tax breaks, amending is an opportunity to get a little extra cash from the IRS. There are a slew of deductions and credits that business owners commonly miss, and the IRS will send you an amended refund if you’re owed one.

You’re never obligated to amend if it will result in a refund, so don’t feel pressured to amend for a minor deduction. You can, however, amend returns for up to three years after you originally filed the return. If you do amend the return, you have to amend everything to the best of your knowledge — in other words, you can’t include the deductions you had missed but omit the extra income you found out about later.

To figure out if amending your return is worth it, do a quick calculation to check how much of a refund you’ll get. Remember, deductions reduce your overall taxable income whereas credits reduce your tax liability dollar-for-dollar. For example, if you could have claimed $15,000 worth of home office deductions on your personal return during the last three years and you’re in the 25 percent bracket, amending will get you a $3,750 refund. If your business could have qualified for $15,000 of the Work Opportunity Tax Credit for the last three years and you’re the sole owner, you’ll get around $15,000 refunded if you amend.

You can amend individual returns using Form 1040X, corporate returns with 1120X, S corporation returns with 1120S, and partnership returns with 1065X. Don’t forget that you’ll need to amend your state return as well. A tax accountant can help you through the process and some tax preparation software, like TurboTax, supports amended returns.

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Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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