There is nothing worse than being able to endure tax season and get through the filing in time before the April deadline, only to realize that you made an error in the return.
Though it is natural to feel like you just made a significant blunder that is irreversible, the truth is it happens. The IRS deals with basic filing mistakes on a regular basis, and just because you made an error does not mean you will get audited.
Different Types of Filing Mistakes
Taxpayers learn about filing mistakes based on one of two circumstances.
- You realized you made a mistake personally after filing the return and want to make a correction.
- You have been notified by the IRS that there was a filing mistake and now the agency wants you to fix it.
There are different options you have to correct a tax mistake on a return depending on the type of error and notice received. Regardless of the notice, the best thing you can do is take action.
The IRS does not harshly penalize taxpayers that reconcile their tax errors quickly, and it rarely leads to an audit. However, there are more severe consequences if you neglect to take quick action and the problem only gets worse over time. So prompt action is essential.
Noticing a Mistake On Your Own
If you have already filed the return by the due date and realized you made a mistake before the IRS sends you a notice, you can take action beforehand. It is what is known as filing an amended tax return.
The amended tax return is only necessary if the due date has already passed. If not, you may simply file a new, original tax return with the correct information.
Preparing an Amended Tax Return
The amended return is usually filed because something on the original return was incomplete, incorrect, or omitted. For example, you may have miscalculated something, or you forgot to claim a particular credit or deduction.
Taxpayers have three years after the original deadline regarding the return in question to file a new amended return. So if you noticed an error on a 2018 tax return, you have until April 2022 to file an amended return.*
It gives you time to notice the mistake before the IRS responds, however, because interest and penalties will get assessed to the mistake(s) it is important to settle the misunderstanding as soon as possible.
Form 1040X is used to for an amended return. This type of form can only get mailed through the post office, and not filed electronically. Furthermore, you should never file an amended return before you receive the tax refund.
*NOTE: There are exceptions to the rule. The IRS can wait as long as six years to claim you owe back taxes if the original return understated gross income by more than 25 percent. They can also go after what they consider fraudulent returns for a lifetime.
Receiving a Notice from the IRS
If you do not notice the mistake on your own, or avoid addressing it, you will eventually get a notice from the IRS informing you of the mistake.
The IRS may contact you before the tax return is fully processed and therefore provide you time to make a correction before it is submitted. Do not count on it though. The IRS has up to three years after the tax year to report any inconsistencies, so the notice does not always arrive immediately.
From here you have two options:
- Accept that there was a mistake with the filing and pay the IRS the amount owed. The agency will send you a Notice CP2000 and it will outline the new balance based on its recalculations. The IRS will also continue to collect interest and charge additional penalties until the debt is paid in full.
- Dispute the notice. If you believe what the IRS claims you filed was not a mistake (or the new calculations are wrong) you can dispute the accusations by submitting a Form 1040X Amended Return. The new return needs to also include a copy of the notice along with an explanation of why you disagree with the IRS findings.
If all goes well, you will receive another letter from the IRS admitting they accept your amended return. If not, you will still owe them money.
Your Best Action is Tax Help
Small errors rarely lead to an audit yet it is important to protect your own back. The IRS sometimes targets those with higher incomes, or utilized deductions that are often abused like the Earned Income Tax Credit (EITC).
If you believe you made a mistake, consider reaching out to a tax expert today. The sooner you file the amended return and pay off the tax debt in full, the sooner you will stop racking up interest and penalties, thus reducing the tax burden.Contact 800-TAX-LEVY or visit www.levytaxhelp.com for more information about dealing with tax errors and how to settle taxes owed. We can also help prepare your Form 1040X.