The Do's and Don’ts of Amended Tax Returns
By Dean Alexander
The instructions for form 1040X provide good tax help to prepare your amended tax return. An amended return is one that aims at correcting previously filed tax returns producing either a new tax debt or a refund.
When you file a 1040X make sure that the amended return includes any adjustments the IRS had previously made to your return as if they are your original filing. For example, if the IRS in previous correspondence increased your adjusted gross income from ten thousand dollars to fifteen thousand, your corrected basis will be the fifteen thousand dollars. So adjusted gross income will be the fifteen thousand dollars, not the ten thousand dollars for the return you are trying to amend.
Claim any net operating loss or unused credit by filing either the 1040X or form 1045 which is an application for refund. For each year you want to amend you must file a separate form 1040X. For each year you are amending you need to have the return for that year and any supporting schedules. Include any IRS notices that you received regarding that year as well.
Do not file an amended return for abatement of penalty or a claim for refund. Also do not file an amended return if you are filing for an injured spouse status. To file for an injured spouse you need form 8379. Usually an injured spouse issue results from a back tax problem that may cause IRS collection actions such as IRS levy, garnishment or tax lien for which a tax resolution must be found.
You have up to three years to file an amended return or two years from the time you paid your taxes, whichever is later. The precise date is not exactly the day you filed the return if you file your return earlier than April 15. The filing date in this instance is April 15, even if you filed on, say, February first.
Bad debt or worthless securities have a different treatment because of the nature of the item. Sometimes it takes longer to discover that a bad debt should have been claimed for a certain year. But your knowledge materialized later on, after the three years statute of limitation. In this case you have seven years to claim the bad debt for that year.
The time limit for net operating loss carry back is three years from filing. However, if a taxpayer wants to use form 1045 "Application for Tentative Refund" he or she should file the form within one year of filing the return. Obviously, if you missed that deadline the only alternative left is filing an amended return.
Just know that an amended return, though it may solve bigger tax problems, may subject you to an IRS audit.
Dean Alexander has been helping clients across the country with tax issues for over 30 years. He currently is the president of NFA Tax Help located in Houston, TX. Their website is www.resolvemytaxes.com.