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.