Tax return mistakes are common. If you've just discovered that you've made a significant mistake on your tax return, here's what you need to know:
Generally speaking, tax return mistakes are a lot more common than you probably realize. This is because taxes have grown complicated. COVID tax relief has made many changes; the paperwork required to file proper tax returns is often convoluted. This is especially true if you're filing your taxes yourself.
The 2020 tax year certainly does not qualify as a "normal year."
Congress passed numerous tax laws before, during, and after 2020 that apply to 2020, making it one of the more complicated tax years in recent memory. Even seasoned tax professionals had a hard time digesting all of the changes they and their clients are now dealing with, requiring hours of continuing education. If you've just discovered that you've made a significant mistake on your tax return, the first thing you should do is stop and take a deep breath, and then call this office. It happens. It's understandable. You can take steps to correct the situation quickly—you just have to keep a few key things in mind, including that the mistake you made could be in your favor.
Fixing Tax Return Mistakes
Here's What You Need to Know:
You can make the necessary corrections within three years from the date you initially filed your tax return (or two years from the date you paid the tax bill). This allows you to fix any mistakes or oversights made on said tax returns.
There's a good chance that the IRS will catch an income omission, math errors, or an incorrect deduction or tax credit. In which case, the IRS will most likely send you a letter letting you know what happened and what you need to do to correct it.
If fixing the mistake ultimately results in you owing more taxes, you should pay that difference as quickly as possible. Penalties and interest will keep accruing on that unpaid portion of your bill for as long as it takes for you to pay it, so it's in your best interest to take care of this as soon as you can.
Many errors include not claiming tax benefits you are entitled to and can cause you to pay more tax than required. In addition, you may have overstated or understated your income, received a late tax document, or K-1. To correct issues on an already-filed return, you generally need to file an amended return.
An amended return allows you to make corrections to previously filed returns. The possible corrections include, but are not limited to:
Overstating or understating income
Changing an incorrect filing status
Adding or deleting dependents
Taking care of discrepancies in terms of deductions or tax credits
If any of the above apply to the error you've just discovered, you can—and absolutely should—file an amended return.
Suppose you catch the error before the filing due date of the return. In that case, you can file what’s called a “superseding return," which allows you to replace the original return instead of filing an amended return. The difference is that when you file a superseding return, you submit a new and complete return to take the place of the one filed initially. With an amended return, you fill out a specific form (1040-X) and attach only backup documents or schedules that pertain to the change.
A sudden increase in your tax liability notwithstanding, it's again important to understand that errors on your income taxes aren't worth stressing over. The IRS understands that sometimes mistakes happen. So they have a variety of processes in place designed to help make things right.
Don't Procrastinate in Responding to the IRS
If you have received a notice from the IRS about an error on your tax return, don’t procrastinate in handling it—address the issue(s) raised by the IRS right away. The same applies if you have discovered an error. Either way, you can contact this office for assistance with responding to the IRS, preparing a superseding or an amended return, and requesting penalty abatement.