Thursday, May 3, 2007

AMENDING YOUR RETURN

You have submitted your 2006 Form 1040 and received your refund, or written your check. You have put your copy and its documentation in the file cabinet with your other prior year returns. You are finished with your “uncles” for another year.

But wait – you read about a deduction, credit, technique or loophole here in THE WANDERING TAX PRO or another tax blog, or somewhere else, that could have gotten you a bigger refund, or reduced the amount you had to pay, on your 2006, and/or earlier, tax return.

All is not lost. You can still take advantage of the deduction, credit, technique or loophole on your 2006, or 2005 or 2004, tax return. While April 15th (April 17 this year) is the statutory deadline for filing your return, you have three (3) years from the due date of the return, including any extensions, - or two (2) years from the date you actually paid the tax, whichever is later - to “amend” the return and get an additional refund (similar to the rule that the IRS has three years from the due date of your return to audit and change that return).

On the other hand, let us say you receive a K-1 or a Form 1099 after filing your 2006 tax return that reports additional income not included on the original return. You should file an amended return to report the additional income and pay the additional tax before “Sam” catches the omission in its matching program and bills you.

Form 1040X, Amended U.S. Individual Income Tax Return, should be used to correct the original Form 1040 (or 1040A) for the year in question. The form has three columns. In Column A you state the income, deductions, exemptions, credits and tax payments as reported on the original return. In Column B you report the individual changes you are making. Column C reports the corrected figures. You must explain the changes you are making in a statement on the back of the Form 1040X.

You should attach to the Form 1040X any IRS schedules or forms that change as a result of the “amendment(s)”. If you are claiming additional or corrected itemized deductions for 2006 attach a corrected 2006 Schedule A. You should also attach a corrected Schedule A if the change reduces, or increases, your Adjusted Gross Income (AGI) and as a result your deduction for medical or miscellaneous expenses is reduced or increased. If you are reporting additional expenses related to rental income or self-employment income for 2004 attach a corrected 2004 Schedule E or Schedule C, and if appropriate Schedule SE. You should also attach copies of any other documentation that supports your changes.

If amending your return results in a refund of overpaid taxes, the IRS will also pay you interest on the amount of the refund, which, of course, must be reported as taxable income on your 2007 return. However, if you are filing an amended return to claim additional income and pay additional taxes the IRS will charge you interest on the tax due, which, as “personal interest”, is not deductible.

Do not file an amended return until the original return has made its way through the system. If there was a refund on the original return, wait until you have received and cashed your original refund check.

One reason to file an amended return is if you did not claim the refundable telephone excise tax credit on your original 2006 tax return, or if you claimed the wrong amount. You would claim this credit on Line 15 of the Form 1040X.

There are certain situations where you cannot file an amended return. If you filed your original return as Married Filing Separate you can amend the individual separate returns to claim one joint return, but if the filing status on your original return was Married Filing Joint you cannot amend the return to file separate returns after the due date of the original return (i.e. April 17th for a 2006 return).

There are also situations when you have more than three (3) years to file an amended return. If the Form 1040X is being filed because of a worthless stock you generally have seven (7) years from the due date, including any extensions, of the return for the year in which the stock became worthless. For the carryback of a Net Operating Loss (NOL) you have three (3) years from the due date of the return for the year in which the NOL was created. In the case of an NOL carryback you would file Form 1045, Application for Tentative Refund, instead of Form 1040X.

Any questions?

TTFN

15 comments:

Anonymous said...

Question. If you want to file an amended return for 2004 and are not as tax saavy as the wandering tax pro is there any software that can help with this daunting task? I seem to be overwhelmed trying to amend our Sched. C and all of the accompanying forms (ie 8829,4562) and the instructions that can be over 50 pages long. Please help!?!

Robert D Flach said...

Dear Anonymous-

I have responded to your question in my June 6th posting.

TWTP

Anonymous said...

Question. Trying to amend my tax return to married filing jointly. On Column A, where it asks for the amount on the original return, do i put in say the AGI of one person and Column C the combined AGI of both myself and my wife or does column A hold that info. Hope the question is clear.

Robert D Flach said...

Dear Anonymous-

If you and your spouse are changing from separate returns to a joint return, follow these steps:

(1) Enter in Column A the amounts from your separate return as originally filed (or as previously adjusted by the IRS).

(2) Enter in Column B the amounts from your spouse's separate return as originally filed or previously adjusted - combined with any other specific changes you are making to either original return.

(3) Enter in Column C the total of Column A and Column B - which represents the joint return.

What I do in such a case is do a 4-column spreadsheet. I put the numbers from the husband's original or revised return in the first column, the numbers from the wife's original or revised return in the second column, any other net changes to the originals in the third column, and the total of the first 3 columns in the fourth column. Column 1 is 1040X Column A, the sum of Columns 2+3 is 1040X Column B, and Column 4 is 1040X Column C.

I hope I have been clear. Any other questions?

THE WANDERING TAX PRO

Anonymous said...

Thanks, that answers my question...it would certainly hit me then that whoever's name is listed on the 1040X first goes on column A. Question is, whose name goes first...hypothetical situation - husband makes more money but wife claimed both kids on her original tax return - would higher income then make her ineligible for EIC? much appreciated

Robert D Flach said...

Dear Anonymous-

(1) If you switch from separate returns to a joint return the amended joint income (AGI) determines eligibility for and amount of EIC.

(2) If the child is a qualifying child of two persons, and the two persons are parents of the child and they do not file a joint return together, then the child will be treated as the qualifying child of the parent with whom the child lived the longest during the year.

(3) If the child is a qualifying child of two persons and the two persons are parents of the child, the child lived with each parent the same amount of time during the year, and the parents do not file a joint return together, then the child will be treated as the qualifying child of the parent with the highest adjusted gross income (AGI).

The Wandering Tax Pro

Robert D Flach said...

Dear Anonymous-

OOPS - As to the first part of your question:

Yes, the person whose name is listed first on the return would use Column A.

Generally the husband's name goes first. But there is no rule that says this must be so. In the past I have put the wife's name first on a few occations.

If the husband has had problems with the IRS in the past, or owes back taxes, student loans, child support, etc, you should put the wife's name - and Social Security number - first on the return.

THE WANDERING TAX PRO

Jonah said...

Question. I am currently in a installment agreement for tax years 2002 and 2003. I recently found out I did not deduct my advertising expenses for those years which would make a considerable difference. Can I file an amended return for those years even though it is over the 3 year time limit and I haven't paid all the tax for those years? Thank you!

howard said...

Dear Wandering Tax Pro,
For the past 10 months I have been attempting to obtain an NJ State refund for 2002/2003 (during this period I had several family crises and apparently did not submit them).

My account has sent registered lettters and that I should have received about 5K.

I finally got someone on the phone in NJ and was told that the time had passed and I could not get the refund. I asked why that they never replied to my accountant's requests in the fashion and have asked for other related info? The gent on the phone had no answer.

Is there anything I can do that will get me my refund?

Thanks,
Howard

Anonymous said...

I have printed out the forms to amend my 2006, 2005, and 2004 tax returns and claim the EITC (1040X, 1040 and EIC - the later two forms for the correct year)(I was a grad student - nominal income) but how do I file a revision to the State of New Jersey? Thank you for your answer. Jane

Robert D Flach said...

Anon-

First - it is too late to amend your 2004 federal or state tax returns to get an additional refund. 2004 is a "closed" year. Only 2005, 2006 and 2007 are currently "open".

If you are amending the return to claim the EITC without a qualifying child you do not have to amend the 2005 or 2006 NJ returns.

Prior to 2007 you had to have New Jersey Gross Income of $20,000 or less AND at least one qualifying child in order to get a NJ-EITC.

In addition, to qualify for the federal EITC for a person without a qualifying child you must be at least 25 years of age, and you cannot be claimed as a dependent on someone else's return.

TWTP

Tamara said...

Question. My mother just found out that her 2007 e-file was rejected due to her name change in the same year (marriage). She filed "married, separately" but now wants to change it to jointly. What should she do, and what numbers should she include on the 1040x since she has no "original" tax return but he does? Thanks.

Robert D Flach said...

Tamara-

I will answer your question in an "Ask The Tax Pro" post at TWTP on Wednesday, January 28.

TWTP

Anonymous said...

if i have already filed my tax return and another w2 has come in that i had forgot about, do i need to amend my taxes now or could i get by with doing it later????????

Robert D Flach said...

Anon-

As I have said in the post - "you have three (3) years from the due date of the return, including any extensions, - or two (2) years from the date you actually paid the tax, whichever is later - to “amend” the return".

TWTP