Making Amends With Taxes Can Bring Rewards
(RIVERWOODS, ILL., APRIL 17, 2002) Ė If you drop your tax return
in the mail or zap it off to the IRS electronically and only then find
out that you could have taken some extra deductions, remember that you
earned some income you didnít report or realize that you would have
been better off if you changed your filing status, all may not be
lost, according to CCH INCORPORATED (CCH), a leading provider of tax
and business law information and software. You can usually put things
right again by filling out and filing an amended return on Form 1040X.
Amended returns not only correct mistakes but can open up previous
yearsí taxes for adjustment, according to John W. Roth, JD, federal
tax analyst for CCH.
"An amended return is the taxpayerís way to correct an
error, add something thatís been left out, change a previous return
to reflect a loss or change a choice that the taxpayer made on a
return. If the change is in the taxpayerís favor, the amended return
also acts as a request for a refund," Roth said.
It may come in especially handy this year. With changes in the tax
law made mid-filing season and a new line on the basic income tax
forms causing plenty of confusion, more taxpayers may see the need to
file an amended return.
Amended returns can be in order when a change in the tax law
changes the "rules" for a return thatís already been
For example, if you paid a lot of money to lose weight in the past
few years, the federal government may owe you a tax refund Ė if you
file an amended return. The IRS has recently ruled that the cost of
weight-loss programs for people diagnosed as obese by their doctors
qualifies as a medical deduction. Previously, the expenses were
deductible only if the taxpayer suffered from a disease such as
hypertension. Due to limits on taking itemized medical deductions, not
everyone who participated in such programs will be able to benefit
from the ruling. As a general rule, those whose expenses qualify can
amend their 1998 or later returns.
Also, the recently passed Job Creation and Worker Assistance Act
changed some of the rules for returns already filed.
For example, equipment purchased after September 10, 2001 qualifies
for the 30-percent bonus depreciation. If people entitled to the bonus
depreciation have already filed their 2001 returns, they can amend
those returns to claim the extra depreciation and get some of their
taxes back, or receive a larger refund.
1040X Undoes Mistakes and More
A forgotten deduction or piece of income is one of the most common
reasons for filing Form 1040X, but an amended return can also be used
to clear up a tax picture that wasnít previously certain.
Suppose, for example, you filled out your Form 1040 in January. You
figured that if you made a $2,000 IRA contribution by April 15, you
would get a hefty tax refund Ė but until you got the refund, you
werenít be able to make the contribution. You filed your return
claiming the full IRA deduction, but by the time your refund check
arrived, you had unexpected medical and car-repair expenses and wonít
be able to afford the full IRA contribution. Filing an amended return
before April 15 will undo the transaction.
Sometimes, too, it may take a while to determine that a stock
actually became worthless Ė or a debt became uncollectable Ė in a
previous tax year. These, too, are situations that can be addressed
through amended returns.
Use Amended Returns To Make, Change Elections
Amended returns are also a common way of making or changing a tax
election Ė a choice of tax treatment. Dozens of elections are
available relating to business, farming, foreign income, residency
status and other special situations. For example, if one spouse is a
nonresident alien, a couple normally cannot file jointly, but they can
elect that status for a year in which the spouse becomes a U.S.
resident. If they do not do so on their original return, they can do
so on an amended return.
"Taxpayers will have to do some research or consult a
qualified tax advisor to learn how long they have to make or change an
election by filing an amended return," Roth noted.
"Sometimes they have up to three years from the original due date
of the return, sometimes up to the original due date plus extensions,
sometimes only up to the due date without extensions."
Changing Filing Status
Amended returns are often required when a couple has their marriage
annulled. Unlike a divorce decree, an annulment looks backward and
undoes a marriage from its beginning. Since unmarried couples donít
qualify for joint filing status, any joint returns filed for prior tax
years have to be "undone" by the filing of amended returns
as single filers.
"This is a rare circumstance in which people who have filed a
joint return can change their filing status," Roth said.
"Normally, after a joint return has been filed, the filing status
canít be changed Ė for example, to married filing separately Ė
unless the amended returns are filed before the due date for that
If a couple has filed jointly but wants to change to married filing
separately and the filing deadline hasnít passed, the two spouses
must take two different paths. The spouse whose Social Security number
appears first on Form 1040 files a Form 1040X. The other spouse files
a new Form 1040.
Amended Returns for Losses
Amended returns can also come into play if casualty losses occur in
an area determined by the President of the United States to be a
"disaster area." In this case, a property owner can elect to
claim his or her losses in the year immediately before the tax year
when the disaster occurs. This allowed some taxpayers who suffered
losses in 2001, for example, to get some quick relief by applying the
loss to their already-paid 2000 tax bill and getting a refund check.
By contrast, taxpayers with 2001 casualty losses outside of
presidentially designated disaster areas have to wait until they file
their 2001 returns to see any tax relief as a result of their losses
unless they are able to reduce their estimated tax payments.
Business losses can also give rise to amended returns. A net
operating loss can ordinarily be carried back to the previous two tax
years, and carried forward to be applied against income in the
succeeding 20 years. Carrying the loss back can produce a refund.
"If you carry back a loss, you also have to recompute any
deduction you took that was tied to adjusted gross income, such as the
deduction for medical expenses," Roth observed.
The latest tax law gives taxpayers the right to carry a net
operating loss for 2001 back five years rather than two, which would
be attractive if a business has suffered losses for the last two years
but was profitable and paid taxes in previous years.
As an alternative to filing an amended return, taxpayers who are
due a refund based on a carryback can file whatís known as a
tentative carryback adjustment to claim it. The tentative carryback
adjustment is usually processed more quickly than an amended return,
but Roth suggests that taxpayers seek professional help to determine
which procedure best suits their needs.
Amended Returns Not Electronic
While an amended return allows you to bring your tax status up to
date, the actual process of filing takes you back to an earlier era of
IRS processing and service. Form 1040X is one of the few that canít
be filed electronically. Your tax software may allow you to fill out
and print the form, but youíll have to send a paper copy to the IRS.
It can take the Service 12 weeks to process the form, and donít
bother calling the automated tax line for a quick check on the
progress. You must call the live-answer, 1-800-829-1040, number
instead. If youíre due a refund, look for your check in the mail.
Electronic deposit is not available when you file an amended return.
"Thereís certainly a benefit to getting things right the
first time around, but it can be worth the wait when an amended return
puts money back in your pocket," Roth said.
When You May Not Have to Make Amends
Some mistakes and omissions donít require you to file an amended
return. The IRS will usually correct any arithmetical errors and
either send you a refund or a bill for any resulting difference in
your tax. If you forgot to attach a form or schedule, the IRS will ask
you for additional information.
So far this year, over a million people have made a mistake
relating to the rate reduction creditóbut even if you know you are
one of them, donít file an amended return just yet.
Many people are making mistakes on the line on their tax returns
intended for taxpayers who did not get a full rate reduction credit
last year to reflect the introduction of the new 10-percent tax rate.
Many people who should leave the line blank are entering the amount of
the full credit they already received last year. Others, who should be
making entries on the line so they will receive the credit, are
leaving it blank.
The IRS says that they are catching most of these errors and will
correct them. Taxpayers are urged not to file an amended return until
they see if the IRS has corrected the error while processing their
About CCH INCORPORATED
CCH INCORPORATED, headquartered in Riverwoods, Ill., was
founded in 1913 and has served four generations of business
professionals and their clients. The company produces more than 700
electronic and print products for the tax, legal, securities,
insurance, human resources, health care and small business markets.
CCH is a wholly owned subsidiary of Wolters Kluwer North America. The
CCH web site can be accessed at cch.com.
The CCH tax and accounting destination site can be accessed at tax.cchgroup.com.
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