It's not unheard of to make a mistake on your taxes. Perhaps you forgot about that bit of dividend income you received earlier in the year. Or maybe you failed to claim a tax credit that could've resulted in a refund. Thankfully, making an amendment to a previously filed tax return is pretty easy. All you need to do is file Form 1040X with the Internal Revenue Service, which allows you to correct your 1040 tax return form without having to start from scratch.
Tax return errors are probably more common than you'd think. In fact, the IRS estimates that 21% of paper returns contain errors. Whether your mistake is a result of an invalid credit, improperly reported income, or a missing deduction, it's in your best interest to correct your error as quickly as possible.
To file an amended tax return, simply download Form 1040X, which is the Amended U.S. Individual Income Tax Return, and follow the instructions provided on the form. Make sure to attached whatever supporting forms or documents might be necessary to back up your amended return.
The good thing about filing an amended tax return is that you don't need to submit new forms for your entire return; you only need to address the parts you're looking to amend. Let's say you originally filed a Schedule B listing $2,000 in interest income but realized down the line that you received another $400 in interest income from a secondary bank. In that case, you'd simply amend your Schedule B; there would be no need to touch the rest of your return.
It's sometimes the case that a tax return error works out better for the IRS than it does for you. For example, if you realize after the fact that you were eligible for a $1,000 tax credit, filing an amended return might put money back in your pocket. On the flip side, if you find that you've underpaid your taxes, you'll need to send the IRS a check for the difference along with your amended return. And the sooner you submit that payment, the better, because the IRS imposes a penalty for all tax payments that are submitted late. The failure-to-pay penalty is typically 0.5% per month of your unpaid tax amount, and it starts accruing the day after taxes are due. While that penalty can be waived under some circumstances -- such as if you can show reasonable cause for not paying on time -- it's better not to take chances.
While you typically have three years from the date your original return was due to submit an amended tax return, once you discover your error, it's best to file your 1040X as soon as possible – whether or not the numbers work out in your favor. Keep in mind, however, that you typically don't need to file an amended return if your original return is foiled by bad math. The IRS will usually make that correction for you automatically. Finally, amendments to your federal tax return could impact your state return, so don't forget to go back and check whether corrections to your state form need to be made.
Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.