What to do if you made a mistake
No one is perfect. We all make mistakes. This rule certainly applies to taxes and is only compounded by the fact that you are often at the mercy of third parties to send you the information in a timely and accurate manner. However, finding out that you made a mistake on your return can bring a sense of dread that you may be audited, hounded by collections agents, or even left a tidy sum of money on the table. Is there any way to fix a return after you have sent it off?
Thankfully, yes. Not only can you fix the mistake yourself (and often this is the best way to handle it), but the IRS might even fix it for you. Let’s look at the possible options.
Has the IRS already fixed it?
Many common mistakes will be caught automatically by the IRS. For instance, if you type in your W-2 wages incorrectly, the IRS will flag it when they get the W-2 from your employer. Once the Service spots the error, it will recalculate your income, including the correct amount of tax owed, and notify you of the change. If more tax is owed, you will need to pay the difference. If less is owed, the Service will issue a refund.
In this case, you should review the changes the IRS has made. But if you agree with the result, you may need to sign the notice and send it back. If you disagree with the revised calculation, there will also be instructions for what to do. But be prepared to prove why the IRS’s math is wrong.
Fix it by amending your return
If you have not received a letter from the IRS telling you that they kindly fixed your return, then you may need to fix it yourself. This is done by amending your return, generally through an X-form. If you need to correct your 1040, then you will submit a 1040X to amend it. If you need to fix your business return, then you may need to file a 1120X. This return type will let you make changes, from adding additional income from your side hustle to claiming a tax credit for that other child you forgot about. If you initially used a tax preparer, they could help you file an amended return. Similarly, most software will also help walk you through this.
Like the possible results, if the IRS corrected your return, you could end up owing more in tax or get a refund by owing less.
Getting your Refund
So, you have realized that there was a mistake on your original return. You have worked through the amended return and found that you paid too much, what now? Like getting a refund with your original return, you need to send in the amended return and tell the government whether you want the excess amount applied to next year’s tax payment or send you a check. In either case, the Service will take some time to check your amended return and determine if it agrees. If you ask for a considerable amount back, there will likely be some questions and lots of double-checking before you see your money.
Paying your debt
If, on the other hand, you finished the amended return and realized you owe more, what do you do?
First, you should send in payment with the return. If you can, send in the full payment. This will give the best result the soonest. However, if you cannot pay in full, consider setting up an installment agreement or evaluating an offer-in-compromise. Once the IRS receives the amended return, they will determine any penalties or interest due. However, full payment with the amended return will stop both penalties and interest from growing any larger. After the evaluation is done, the Service will notify you of the amount you owe.
If you find yourself in this situation, contact us to talk about your options to deal with the unpaid taxes.