To amend or not to amend?

If you’ve discovered an error on your business’s federal income tax return, you might wonder if you need to file an amended return.

Expect a wait time of about 20 weeks for your paper or electronic amended return to be processed.

First things first: For this and all other business tax questions, we strongly recommend you consult an experienced accountant or attorney. Likewise, please understand that forms and processes are subject to change, so you should verify all details on the IRS website or with a tax professional. Also, note that this article addresses federal tax returns;  remember that your state’s tax laws may vary from
federal laws.

That said, we’ll cover three common situations that typically require an amended return, three that usually don’t,
and the basic process for filing.

When to Amend Your Business’s Federal Tax Return

If one of these circumstances arises, don’t panic – get ready to file an amended return and pay any balance owed:

1. You underreported your income for the year: If you find you miscalculated your business’s income and tax liability, it’s best to be proactive. File an amended return and pay the amount due as soon as possible to keep penalties and interest charges to a minimum.
2. You made a mistake with deductions: Deductions involve dual risk: Overlooking allowable deductions or credits means leaving cash on the table, but improper write-offs can lead to hefty fines or worse. The good news is that you can amend a return to fix a mistake in either direction.
3. You received new tax information: A delayed Form 1099-K, a revised depreciation schedule, or a corrected inventory report could all bring information to light that might impact your tax liability. Amended tax return forms include a space for you to explain why the correction is needed.

When Not to Amend Your Business’s Federal Tax Return

When it comes to the IRS, never say never – but these situations generally do not necessitate an amended return:

1. You made a basic miscalculation or typo: According to the IRS, simple arithmetic mistakes are some of the most common tax filing problems. That’s why the IRS uses an automated system to detect and correct minor blunders like adding boxes 5a and 5c instead of 5a and 5b.
2. You forgot to attach a form: It’s advisable to double-check that you’ve included a Schedule C on your 1040 or a Schedule K-1 on your 1120-S, but if it slipped your mind, it’s usually best to wait until the IRS requests it. That way, you won’t slow down the process with unnecessary paperwork.
3. Your e-filed tax return is rejected: In most cases, if your electronic return is rejected, the system will generate a reject code that tells you exactly what the problem is (the most common one being an incorrect self-select PIN). If this happens, simply revise your return and resubmit.

When to File

Generally, you have three years after the date you filed your original return or two years after you paid the tax – whichever is later – to file an amended return. However, you should file as soon as possible (unless you’re amending to receive a larger refund, in which case you should wait until the original refund is received).

Forms You’ll Use

The form you or your preparer must provide to the IRS depends on your business’s legal structure:

• Sole proprietors and single-member LLCs: File Form 1040-X (Amended U.S. Individual Income Tax Return) to amend a previously filed Form 1040.
• General partnerships and multimember LLCs: File Form 1065-X (Amended Return or Administrative Adjustment Request) to amend a previously filed Form 1065.
• S corporations: File a new Form 1120-S (U.S. Income Tax Return for an S Corporation) with “Amended return” checked in line H to amend a previously filed Form 1120.
• C corporations: File a Form 1120-X (Amended U.S. Corporation Income Tax Return) to amend a previously filed Form 1120.

Before starting the paperwork, ensure you have the correct form, a copy of your original return, and any notices you’ve received. Check current IRS rules to see whether you can file electronically or must file by mail.

How Long You’ll Wait

According to the IRS, you can expect a wait time of about 20 weeks for your paper or e-filed amended return to be processed. If you’re filing for an additional refund, there may be a further delay. Sole proprietors and single-member LLCs filing a Form 1040-X can track their status using the IRS’s ‘Where’s My Amended Return’ tool. No online tracking is available for Forms 1065-X, 1120-S, or 1120-X.

Count on the Experts’

If you used a professional tax preparer and they made a mistake on your original return, they are likely responsible for correcting it at no additional charge to you. Be sure to check with your tax preparer before filing. Regardless of whether you used a pro or filed on your own, an experienced accountant or attorney can help you determine if an amended return is warranted and prepare the necessary paperwork.