Amended tax returns – when and how to file them

Not every interaction with the Internal Revenue Service (IRS) must necessarily induce flop sweat.

Case in point: A few years ago a friend of mine decided his income taxes had become sufficiently complicated to merit hiring an accountant. After examining previous tax returns, the accountant discovered my friend had claimed the standard deduction for two years when he should have itemized expenses. He filed a couple of amended tax returns and voila – the IRS wrote him checks totaling more than $1,200.

Of course, not all tax-filing mistakes end on such a happy note. Sometimes people find out after submitting a return that their employer had sent an incorrect W-2 form, or they forgot to report self-employment income, or they incorrectly claimed someone as a dependent.

Although it’s tempting to let such mistakes slide, chances are the IRS will discover the error eventually, and when they do you could be liable for interest and penalties going back to the due date of the original tax return. Worst case: You could even face criminal charges for filing a fraudulent return.

Here’s a guide to when – and how – you should file an amended tax return:

If you discover an error on your federal income tax return after having already e-filed or mailed it, you may file an amended return using IRS Form 1040X (at http://www.irs.gov). The following rules apply:

Amended returns cannot be e-filed; you must submit a paper version.

Submit a separate Form 1040X for each year’s return you wish to amend and mail them in separate envelopes.

Generally, you must file Form 1040X within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later.

If your amended return involves changes to another schedule or form, you must attach a revised version of that schedule or form.

If you’re filing to claim an additional tax refund on a recently filed return, wait until you’ve received the original refund before filing Form 1040X. You’re allowed to cash the original check while waiting for any additional refund.

On the other hand, if your amended return will result in you owing additional tax, file it right away to limit interest and penalty charges that might accrue.

The normal processing time for a Form 1040X is eight to 12 weeks. You needn’t file an amended return because of simple math errors – the IRS will automatically make corrections and bill you for any additional tax required (or increase your refund). Nor must you file a 1040X if you forgot to attach tax forms or schedules to your return. The IRS will send a request if it needs them.

However, you should file an amended return if you:

Received additional or amended tax forms or statements from employers, banks or investment brokers after you filed your return (e.g., W-2 or 1099 forms).

Forgot to report income.

Overlooked tax deductions or credits you could have claimed.

Claimed deductions or credits for which you weren’t eligible.

Didn’t claim a dependent you were entitled to, or claimed someone you shouldn’t have.

Chose the wrong filing status.

One last tip: If you’re going to the trouble of filing an amended tax return for a specific reason, review the entire original return carefully for any other deductions, credits or exemptions you might have missed the first time.