Amended Returns Offer Taxpayers a Second Chance
(RIVERWOODS, ILL., April 7, 2008) – Even taxes can be better the second time around. When a change in the law or an overlooked deduction tilts the tax situation in your favor, an amended return can put cash in your pocket. Even if you’ve received – and spent – a refund, it may not be too late to go back for more, according to CCH, a Wolters Kluwer business and a leading provider of tax, accounting and audit information, software and services (CCHGroup.com). You can usually get all that’s coming to you by filling out and filing Form 1040X. And even if a change to your return costs you, paying a few dollars of extra tax voluntarily with an amended return is preferable to having the IRS on your tail.
Amended returns not only correct mistakes but can open up previous years’ taxes for adjustment, according to John W. Roth, JD, LLM, CCH senior federal tax analyst.
“An amended return is the taxpayer’s way to correct an error, add something that’s 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 taxpayer’s favor, the amended return also acts as a request for a refund,” Roth said.
Not Too Late for Telephone Credit
Last year, almost every taxpayer was eligible for a one-time payment representing a refund of federal telephone excise tax. But only about 70 percent of those eligible actually claimed it on their 2006 returns.
“There’s always some poor soul who doesn’t get the message,” Roth observed. “And when you’re talking about millions of taxpayers, the numbers of poor souls adds up. If you’re one of those who failed to claim the refund, you have to file an amended return for 2006. You can’t claim it on this year’s return.”
Some mistakes and omissions don’t require you to file an amended return, however. The IRS will usually correct any math 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.
Amended Returns for Military Personnel
Also helped by an amended return are members of the military who can now make a contribution to an IRA for tax years 2004 and 2005, based on excludable combat pay that was not counted as earned income in those years but now can be for IRA purposes. For tax years 2004 and 2005, military personnel have until May 28, 2009 to make a contribution and a further year after that, until May 28, 2010, in which to amend their returns to claim a refund.
Amended Returns Offer Second Chance
An amended return also can be used to clear up a tax picture that wasn’t previously certain.
Suppose some bills have piled up, and when you take a first look at your taxes, it seems that you’re due a refund that will cover them. One of your itemized deductions will be for state income tax. But you might be due an even bigger refund if you took the deduction for state sales taxes instead. (You can’t take both.) The problem is, it will take some time to sort through all your records to see if you’ve saved enough receipts to make the sales tax deduction worthwhile.
To cover your immediate needs, you can file your return right away, claiming the income tax deduction and using the refund to pay your expenses. At a later date, you can add up all your receipts and, if the sales tax deduction produces an even larger refund, you can file Form 1040X to claim the difference.
Time to sort things out can also be an issue when you need to determine that a stock actually became worthless – or a debt became uncollectible – in a previous tax year. These also 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 – 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 usually 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 don’t 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 can’t be changed – for example, to married filing separately – unless the amended returns are filed before the due date for that year.”
If a couple has filed jointly but wants to change to married filing separately and the filing deadline hasn’t 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 to be a “disaster area.” In this case, a property owner can elect his or her losses in the year immediately before the tax year when the disaster occurred.
This allowed some taxpayers who suffered losses in 2007, such as those in California wildfire zones declared disaster areas, to get some quick relief by applying their loss to their already-paid 2006 tax bills and getting refund checks. By contrast, taxpayers with 2007 casualty losses outside of presidentially designated disaster areas have to wait until they file their 2007 returns to see their tax relief.
Business losses can also give rise to amended returns. A net operating loss can 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 a deduction for medical expenses,” Roth observed.
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 can’t be filed electronically. Your tax software may allow you to fill out and print the form, but you’ll have to send a paper copy to the IRS. It can take the IRS 12 weeks to process the form, and don’t bother calling the automated tax line for a quick check on the progress. You must call the live-answer line, 1-800-829-1040, instead. If you’re due a refund, look for your check in the mail. Electronic deposit is not available when you file an amended return.
“There’s 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 noted.
About CCH, a Wolters Kluwer business
CCH, a Wolters Kluwer business (CCHGroup.com) is a leading provider of tax, accounting and audit information, software and services. It has served tax, accounting and business professionals and their clients since 1913. Among its market-leading products are The ProSystem fx® Office, CorpSystem®, CCH® Tax Research NetWork™, Accounting Research Manager® and the U.S. Master Tax Guide®. CCH is based in Riverwoods, Ill.
Wolters Kluwer is a leading global information services and publishing company. The company provides products and services globally for professionals in the health, tax, accounting, corporate, financial services, legal and regulatory sectors. Wolters Kluwer has annual revenues (2007) of €3.4 billion ($4.8 billion), maintains operations in over 33 countries across Europe, North America and Asia Pacific and employs approximately 19,544 people worldwide. Wolters Kluwer is headquartered in Amsterdam, the Netherlands. For more information, visit www.wolterskluwer.com.
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