What do you do when you realize that you made a mistake on a recently filed tax return?
That was the question I got from two recent college graduates who had both filed returns in haste because they were eager to receive refunds.
One had discovered after he filed that he could claim himself as a tax exemption, qualifying him for lucrative deductions and credits available for low-wage earners.
The other had forgotten about a part-time summer job. The W-2 had been sent to his family home, and he got it around the same time that he received a tax refund check and realized that the refund probably should have been smaller.
In both cases, the answer was the same: You can go back and fix tax mistakes that are up to three years old. But it's not necessarily easy.
The key to fixing a tax mistake is a form called the 1040X — the amended U.S. individual income tax return. It looks somewhat like the basic tax return at the top, asking your name, address, Social Security number and filing status. But then it deviates from the regular form by dispensing with all the questions about where your income came from and what specific deductions you might have to reduce the taxable portion.
Instead, the 1040X cuts to the chase with a three-part question: How much adjusted gross income did you report before, what are you reporting now and how much is that number changing?
It then asks the same three questions about your deductions, exemptions and taxable income.
The final portion of the form simply asks for documentation or an explanation of why you're making the correction.
Theoretically, your final step is to simply sign, date and mail.
But filing a corrected tax return is rarely that simple. In reality, any change in your adjusted gross income is likely to alter several other calculations that determine your deductions, taxable income and tax.
That's mainly because many tax breaks are income tested, meaning that they may not be valid at all income levels.
Some examples: Your ability to claim the child tax credit for paying college tuition is predicated on earning less than a set amount. Your ability to deduct medical expenses can depend on whether the bills exceed a certain percentage of your income. You can claim credits for renters and low-wage earners only if your income is under a certain level.
"Any change is going to flow all the way through your tax return," said Terrence Rice, a certified public accountant in Milwaukee.
Therefore, even though the 1040X doesn't technically require it, you'd be wise to redo your entire 1040 tax return, ensuring that you adjust all calculations that could give or take away deductions or credits based on income thresholds. In some cases, a change in your income might allow you to qualify for new deductions, and that could involve filling out additional forms.
Making the correction isn't difficult if you use a tax software program, but it can be time consuming if you do it by hand. Again, although it's not required, it's not a bad idea to include the new version of your entire 1040 with the 1040X form.
If you're expecting a big refund because of your corrections, you'll need to be patient. The IRS says it typically takes eight to 12 weeks to process a corrected 1040.
That was the question I got from two recent college graduates who had both filed returns in haste because they were eager to receive refunds.
One had discovered after he filed that he could claim himself as a tax exemption, qualifying him for lucrative deductions and credits available for low-wage earners.
The other had forgotten about a part-time summer job. The W-2 had been sent to his family home, and he got it around the same time that he received a tax refund check and realized that the refund probably should have been smaller.
In both cases, the answer was the same: You can go back and fix tax mistakes that are up to three years old. But it's not necessarily easy.
The key to fixing a tax mistake is a form called the 1040X — the amended U.S. individual income tax return. It looks somewhat like the basic tax return at the top, asking your name, address, Social Security number and filing status. But then it deviates from the regular form by dispensing with all the questions about where your income came from and what specific deductions you might have to reduce the taxable portion.
Instead, the 1040X cuts to the chase with a three-part question: How much adjusted gross income did you report before, what are you reporting now and how much is that number changing?
It then asks the same three questions about your deductions, exemptions and taxable income.
The final portion of the form simply asks for documentation or an explanation of why you're making the correction.
Theoretically, your final step is to simply sign, date and mail.
But filing a corrected tax return is rarely that simple. In reality, any change in your adjusted gross income is likely to alter several other calculations that determine your deductions, taxable income and tax.
That's mainly because many tax breaks are income tested, meaning that they may not be valid at all income levels.
Some examples: Your ability to claim the child tax credit for paying college tuition is predicated on earning less than a set amount. Your ability to deduct medical expenses can depend on whether the bills exceed a certain percentage of your income. You can claim credits for renters and low-wage earners only if your income is under a certain level.
"Any change is going to flow all the way through your tax return," said Terrence Rice, a certified public accountant in Milwaukee.
Therefore, even though the 1040X doesn't technically require it, you'd be wise to redo your entire 1040 tax return, ensuring that you adjust all calculations that could give or take away deductions or credits based on income thresholds. In some cases, a change in your income might allow you to qualify for new deductions, and that could involve filling out additional forms.
Making the correction isn't difficult if you use a tax software program, but it can be time consuming if you do it by hand. Again, although it's not required, it's not a bad idea to include the new version of your entire 1040 with the 1040X form.
If you're expecting a big refund because of your corrections, you'll need to be patient. The IRS says it typically takes eight to 12 weeks to process a corrected 1040.
No comments:
Post a Comment