Tax mistake? You can make amends

By Jeff Schnepper

I know you were careful. You did the math. Your tax preparer did the math. You double-checked his math. But sometimes, no matter how hard you look at a figure, that error you just made -- or that your preparer just made -- doesn't register in your mind.

This is not the end of the world. When a mistake is made on your tax return, correct it. The error may be in your favor or in favor of the IRS. It may be because of a missed deduction, an incorrect interpretation of the law or facts, or simply a late or corrected W-2 or 1099. In any case, correct it.

Fortunately, the IRS recognizes that your tax return may need to be corrected and has drafted a specific form for that purpose: Form 1040X (.pdf file). This form is easy to complete. It has three columns: one for what you originally reported, one for the changes in the numbers, and a third for the final, corrected numbers. On the back, you explain the change. (You can download the instructions as well.)

If the reason for the change is a corrected 1099 or other third-party document, attach a copy to your return. If the change is because of a deduction you missed, attach a copy of the receipt to the return. It's optional, but I suggest that you try to attach documentation to "prove" your change.

What I'm trying to do here is minimize your chances of getting audited. The very fact that you filed an amended return will not, in and of itself, increase your chance of being audited.

However, an amended return demands extra scrutiny by the IRS. An agency representative must call up your old return and compare the changes with the new return.

That gives the IRS twice as many chances to see something troubling.

Prove those deductions

That's why I recommend attaching substantiation for the changes on your Form 1040X. If the change, for example, is a huge charitable contribution missed on your original return, the IRS computer will pop out your return for human review. That's where your attached substantiation should dissolve any audit questions, because you've already "proved" your deduction.

In fact, by attaching substantiation of the change to your amended return, you have shown the reviewing agent that you know the rules and would be a poor audit risk. You may have actually decreased your chances of a full audit.

When can you amend your return? The normal statute of limitations for a tax return is three years. That means that you have three years from the due date of your return to amend it. Here's how the rule affects you:

• Your 2005 individual tax return should have been filed by April 15, 2006. Now that April 15, 2009, has passed, you can no longer amend that return.

• If you have found a mistake on your 2006 return (which should have been filed by April 15, 2007), you have until April 15, 2010, to amend it. (So get to it!)

• If you think you made a mistake on your 2008 return, you have until April 15, 2011, to amend it. (But don't procrastinate for too long.)

This statute of limitations is really important if you are due a refund and haven't yet filed your return for the current year. Some people, if they think they're due a refund, take the easy route and procrastinate.

They know they don't owe any additional tax, and they figure there's no rush in getting that return out to the IRS. They're wrong.

Continued: Ask for your refund or lose it

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