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Amending Last Year’s Taxes: What you need to know

Amending Last Year’s Taxes: What you need to know

Did you make an error on a tax return you already filed in the previous year? Or, did you come across new information include tax deductions or credits you didn’t know you qualify for? You can make the correction by filing an amended tax return. The Internal Revenue Service (IRS) is aware of how complicated the tax code can be so they know people can make mistakes. That’s why they made sure the process for filing an amendment straightforward and that’s by simply filing Form 1040X, Amended Tax Return, together with the correct or additional documents you forgot to file on your original return.

However, there are some important things you have to keep in mind when amending last year’s taxes. There are different reasons why people want to amend their tax returns but whatever your reason is, please know that your time to do so is very limited. Typically, amending your return must be done within three to years from when you first filed your return.

You need to file an amended return within two or three years of the original return’s filing date although there are circumstances that can be given an exception.

What’s the IRS Amended Return Deadline?

Taxpayers who made mistakes on tax returns they already filed the previous year(s) are given by the IRS three years from the date the original return was filed. But the three year period is only for those seeking a tax refund or credit, only two years if you paid your taxes. You may face penalties and interest if the IRS found out that you owe taxes on the amended return.

In order to file an amended return, you are required to file Form 1040X. These returns aren’t qualified for e-filing, they have to be mailed instead. For those who are filing amended returns for many years, they will be required to fill out a separate form and a separate mailing. It is highly recommended by the IRS to send the amended forms by certified mail to prove that they were filed right on time.

You are required to include a copy of your original tax return with the return that has already been amended together with other forms related to the amendments. Make sure you didn’t include forms that don’t have anything to do with amendments or need any changes. Remember that the chance of you having to amend your state tax returns for the years in question is highly possible too.

What happens when you amend returns after three years?

In very few cases, taxpayers are allowed by the IRS to file an amended tax return after three years. If you read Form 1040X instructions, you will learn that the limit for filing an amended return may be suspended if you are physically or mentally unable to manage your finances. If a bad debt or worthless security is involved in the amendments, the return is typically required to be filed within seven years after the due date of the return for the year in which it becomes a worthless item. 

What you need to know about your Audit Risk

According to the statute, the IRS generally has three years after the due date for the tax returns to get audited. Although you are required to file an amended tax return within three years, that doesn’t mean the three-year audit timeline of the IRS starts again.  However, when an amended tax return is filed and there is a tax increase, and you submitted your amended return within 60 days of the three-year statute of limitations of the IRS, your amended return must be reviewed by the IRS within that 60-day window. 

Now, for amended returns which taxes that didn’t increase, the 60-day review no longer applies. That doesn’t mean the IRS can’t audit a return that is more than a three-year deadline although there are specific circumstances that apply. When there is a 25 percent or larger understatement of income or basis overstatements on sold properties, the audit timeline doubles to six years. There is no statute of limitations if you don’t file a tax return or you filed a fraudulent return. 

Consider consulting a tax professional who can help you file your amended tax return for you.

Unifirst Financials & Tax Advisors
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