If you’ve made an error on your income taxes, don’t panic. There are processes in place and forms available to remedy the situation.
“The worst that will happen with a mistake is interest and penalties,” says Michele Cagan, certified public accountant and author of “Debt 101.” “Mistakes are mistakes.” She notes, however, fraudsters could face harsher consequences.
So tax filers, relax. Take a deep breath and follow these steps after you’ve erred on your taxes.
[See: 9 Red Flags That Could Trigger a Tax Audit.]
Recognize Common Tax Mistakes
Tax mistakes run the gamut. “There are a wide variety of errors,” says Mitchell Freedman, certified public accountant and personal financial specialist based in Westlake Village, California.
Common tax errors include:
— Inputting the wrong Social Security number.
— Transposed numbers.
— Math mistakes.
— Omitting forms or information.
— Neglecting to report income.
— Misinterpreting tax law.
— Taking credits for which the filer doesn’t qualify.
To avoid math mistakes and typos, have your tax software program automatically upload information from your W-2 or other tax forms to the program, Cagan says.
Make sure you give yourself adequate time to prepare your taxes. If you need more time or haven’t received crucial tax forms, you should file an extension, which gives you until Oct. 15 to file your taxes (although you still have to pay by Tax Day).
[Read: How to File Back Taxes.]
How Can I Fix a Mistake on My Taxes?
Your next move will depend on the size of the mistake and whether you notice it or the IRS does.
In many cases, the IRS will catch a discrepancy such as a math error or unreported income and send you a notice. If you’ve worked with a tax preparer, bring that notice to him or her. If not, check to ensure that the letter is accurate. You may owe additional tax, plus interest, or you may be due an additional refund.
Tax experts recommend paying any outstanding tax due but letting the IRS calculate interest and penalties for you. “We wait for the IRS to assess that,” Freedman says. Uncle Sam may come up with a different number than you would’ve, and you don’t want to deal with underpayment or overpayment on tax penalties. “If you overcalculate interest and penalties, it’s a little harder to recover those than regular tax payments,” Cagan says.
To correct major omissions, fix misinterpretations of tax law, claim recently extended tax benefits and enact other large-scale changes, filers can submit a Form 1040-X, an amended income tax return. File this form instead of attempting to file two original tax returns for the same year, which will complicate things and may delay a tax refund.
Be aware that correcting a tax form may have ripple effects, Freedman says. For example, when you report additional income, it could impact whether you can still claim itemized deductions such as medical expenses, which must exceed a certain percentage of adjusted gross income. For complicated tax situations, talk with a tax professional.
[Read: How Are Unemployment Benefits Taxed?]
What Is the Form 1040-X?
Form 1040-X is the amended U.S. income tax form that is filed after you sent your original return. It allows you to correct certain tax documents, including claiming unused tax credits or inputting additional information.
About 3 million of these forms are filed each year, according to the IRS. Previously, the 1040-X was only available on paper. Starting in summer 2020, filers can submit the Form 1040-X electronically using tax software programs. It will be available to amend 2019 forms 1040 and 1040-SR.
To file a 1040-X, you’ll need:
— The form itself.
— A copy of your original tax return.
— Supporting documentation and tax forms.
— Any notices from the IRS or adjustments to your returns.
— Instructions for the return you are amending.
To amend a tax return in your favor — say, to claim a tax credit or refund — you must generally file the 1040-X within three years of the date you filed your original return or two years after you paid the tax, whichever is later, according to the IRS.
Early returns are considered filed on the due date, which is typically April 15. The IRS cautions against filing the 1040-X to request a refund of penalties or interest (another form covers that).
The form gives you space to include an explanation for why you’re amending your return. You don’t have to write a book, Freedman says. Keep your response short — for example, say that income was inadvertently omitted.
Don’t Forget Your State Tax Return
A mistake on your federal tax return will likely impact your state income tax return. Don’t neglect to investigate the process for fixing an error on your state return. “Each state has its own provisions for filing amended returns,” Freedman says.
Will I Be Punished for Making a Mistake on My Taxes?
Unless you’ve committed fraud, the IRS isn’t going to throw you in jail for making an error on your tax return, Cagan says. “If you’re committing fraud, I would worry,” she says.
Filers who make honest mistakes will be asked to fix them and pay the requisite penalties and interest. To remedy complicated situations or audits, consider working with a tax professional to make sure that things are done right this time around.
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