In case your clients missed a pivotal tax deduction that could have saved them some serious cash, or you need to fix something on an old return to make sure your clients are in compliance with the IRS, filling out the Amended U.S. Individual Income Tax Return (Form 1040X) gives taxpayers and preparers another opportunity for an additional refund and potentially avoid headaches triggered by omissions and mistakes.

CCH, a Wolters Kluwer business, offered advice on where an amended return may be a smart tax strategy.

“The amended return option enables taxpayers to get a second chance at correcting tax forms that already have been filed,” said CCH senior federal tax analyst John W. Roth, JD, LLM. “You can voluntarily correct an error, add something that had been omitted and change a previous return to reflect a loss. If the adjustment favors the taxpayer, the amended return also serves as a refund request.”

Some mistakes and omissions don’t require you to file an amended return, however. The IRS will usually correct any math errors and will send you a refund or a bill for the resulting difference in your tax. If you forgot to attach a form or schedule, the IRS will ask you for additional information.

Amended Returns Offer Tax Clarity
An amended return may also be used to clarify a tax situation that wasn’t all that certain at the time.

For example, after reviewing your taxes it looks as though you’re in line to receive a refund. One of your itemized deductions may be for state income tax, but you might be eligible for an even bigger refund if you take the deduction for state sales taxes instead. (You can’t take both.)

However, it will take some time to sort through all your records to see if you’ve collected enough receipts to qualify for the sales tax deduction.

To cover your immediate needs, you can file your return right away, claiming the income tax deduction and using the refund. At a later date, you can add up all your receipts and, if the sales tax deduction produces an even larger refund, you can file Form 1040X to claim the difference.

Time to sort things out can also be an issue when you need to determine that a stock actually became worthless or a debt became uncollectible in a previous tax year. These also are situations that can be addressed through amended returns.

Changing Filing Status
An amended return is usually required when a couple decides to annul a marriage. Unlike a divorce decree, an annulment looks backward and undoes a marriage from its beginning. Since unmarried couples don’t qualify for joint filing status, any joint returns filed for prior tax years have to be “undone” by the filing of amended returns as single filers.

“This is a rare circumstance in which people who have filed a joint return can literally go back into the past and change their tax filing status,” Roth said. “Normally, the filing status can’t be changed after a joint tax return has been filed, but an annulment introduces different options for an amended return.”

If a couple has filed jointly but wants to change to married filing separately and the filing deadline hasn’t passed, the two spouses must take two different paths. The spouse with the Social Security number appearing first on Form 1040 must file Form 1040X. The other spouse files a new Form 1040.

Use Amended Returns to Make, Change Elections
Amended returns are also a common way of making or changing certain tax elections, or choices of tax treatment. Dozens of elections are available relating to business, farming, foreign income, residency status and other special situations.

For example, if one spouse is a nonresident alien, a couple normally cannot file jointly, but they can elect that status for a year in which the spouse becomes a U.S. resident. If they do not do so on their original return, they can do so on an amended return.

“To be certain about changing a tax election on a past return, taxpayers should either consult a qualified tax advisor or do some additional research to determine if a specific election can be changed and the deadline for filing an amended return to make the change,” said Roth.

Amended Returns for Losses
Amended returns can also come into play if casualty losses occur in an area determined by the President to be a “disaster area.” In this case, a property owner can elect his or her losses in the year immediately before the tax year when the disaster occurred.

This allows some taxpayers who suffered property losses in 2011 to get some quick relief by applying their loss to their already-paid 2010 tax bills to receive their refund checks. Those incurring business losses may also benefit from filing an amended return. Usually, a net operating loss can be carried back to the previous two tax years, and carried forward to be applied against income in the succeeding 20 years. Carrying the loss back may generate a refund.

“If you carry back a loss, you must also recalculate any deductions you took that were tied to adjusted gross income, such as a deduction for medical expenses,” Roth added.

No E-filing Option for Amended Returns—Paper Only
While an amended return allows you to bring your tax status up to date—it has to be done on paper. Form 1040X is one of the few IRS forms that can’t be filed electronically.

Your tax software may allow you to fill out and print the form, but you’ll have to send a paper copy to the IRS. It can take the IRS 12 weeks to process the form. If you’re due a refund, look for your check in the mail. Electronic deposit is not available when you file an amended return.

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access