How to Amend Your Federal Tax Return

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Reasons to File A Federal Amended Tax Return

IRS Form 1040X is used to file an amended tax return. As the name implies, the purpose of this form is to correct or change an item on a tax return that has already been filed. With an amended tax return, you can:

  • Claim the First Time Home Buyers Credit (special rules apply)
  • Change your filing status
  • Add or remove a dependent
  • Report additional income
  • Claim additional adjustments or deductions
  • Claim overlooked tax credits
  • Change a preparation error, such as failure to use a favorable tax method, like capital gains tax or failure to calculate self-employment tax

Do I Have to File an Amended Return?

Technically, no, an amended return will not always be necessary. For errors involving omitting a standard income form such as Form W-2 (Wage income) or Form 1099-R (Retirement Income), the IRS will usually catch your error and send you a notice. For almost all errors involving failure to include a deduction or a tax credit, the IRS will not catch this and your only remedy is to file an amended tax return.

Although the IRS may catch your error, it is still strongly advisable to file an amended return as soon as possible after you discover an omission or other necessary correction. If you file an amended return before the deadline of the original return, you will avoid most, if not all, penalties and interest on the correction. Further, if you file a corrected return before the IRS catches your error and sends a notice, the IRS most likely will not charge a negligence penalty, although you will still owe interest on any taxes paid after the due date of the original return.

It can be up to two years before you receive a notice from the IRS that an error has been found and additional taxes have been calculated on your return. During this time period, an alarming amount of penalties and interest can accrue. It is far better to just file an amended return as soon as you realize that your tax return was incorrect.

How to Fill Out a Form 1040X

The top part of the federal Form 1040X is for your name(s), address, social security number(s), filing status, and the tax year you are amending. There is also a section for any changes in dependents.

The IRS recently updated Form 1040X and it is much simpler and has just one column. This column is used to report the corrected amounts only.

To get the amounts for the amended tax return, you must first prepare a new tax return using your corrected figures. If there are any new or corrected forms or schedules, you must also prepare these. Be sure to use the tax laws and tax rates that were in effect for the year that you are correcting.

The Form 1040X has a section for you to fill in the reason for filing the amended tax return. You should be brief and specific. For example, you might report that you received a late Form W-2 with gross income of $5000.00 and Federal withholding of $500.00 from the John Smith Corporation.

IRS Form 1040X

IRS Form 1040X instructions

Filing for the First Time Homebuyers Credit

A 2009 amended tax return can be filed to claim the First Time Homebuyers Credit for a home purchased in 2010. (The home must have a binding sales contract dated April 30 2010 or earlier AND the sale must be completed by Sept 30 2010.) For this credit, a 2010 Form 5405 would be filed with a 2009 Form 1040X. Since the tax laws have changed and can also be complex for claiming the credit on an amended return, it would be wise to consult with a tax accountant or CPA for claiming this credit with an amended tax return.

Consider claiming the First Time Homebuyers’s Credit with an amended return against the prior year if your current year income is high enough to reduce your allowable credit. If your income was lower in the prior year, you may be eligible for a larger credit. It is worth checking to see which year brings the larger credit.

You may also consider filing to claim the credit with an amended 2009 return if there is an unavoidable delay in preparing your 2010 return and you want the credit as soon as possible.

Follow the instructions carefully, as the IRS has greatly increased the documentation that needs to be attached to the returns in order to claim the credit.

The IRS has issued a 2010 Form 5405 to be used to claim the First Time Homebuyers Credit on a 2009 or 2010 tax return

IRS 2010 Form 5405

Instructions for Form 5405

What to Attach to the Form 1040X

If you are reporting any changes in withholding, you should attach the Form W-2, 1099, or other form that shows the amount you are correcting.

You should also attach any new or changed forms or schedules. If you attach a corrected Form 1040, be sure to write “Amended” across the front of both pages of the 1040.

There are special rules and many documents required for the Form 5405 (First Time Homebuyer’s Credit). See the form and instructions for the required attachments if you are filing a 1040X with a Form 5405.

When Should I File the Form 1040X?

If the amended tax return is being filed to claim an additional refund, you should wait until you receive your original refund to file the amended return. If you will owe additional tax, file as soon as possible.

For claiming refunds, an amended form must be filed within three years of the original due date of the return, or within two years of the payment of the tax, whichever is later. For example, to claim an additional refund on a 2007 tax return, the 1040X must generally be filed by April 15, 2011.

When to Use a Tax Accountant or Tax Attorney

If your correction involves taking an aggressive new tax position, a complex calculation, or anything requiring more than a simple correction, you would be well advised to consult with a tax accountant to prepare the amended return. If the correction is for a substantially under reported amount, or if it is for a controversial tax position, then you may even prefer to consult with a tax attorney.

This article is not intended to be specific tax advice. It is intended as a general guideline only. Any specific advice should be sought from your tax professional.

CIRCULAR 230 DISCLOSURE: Pursuant to Treasury Department guidelines, any federal tax information contained in this article, or any attachment, does not constitute a formal tax opinion. Accordingly, any federal tax advice contained in this communication, or any attachment, is not intended or written to be used, and cannot be used, by you or any other recipient for the purpose of avoiding penalties