6 Reasons to File an Amended Tax Return

You probably just finished filing your tax return and you’re thankful that it’s done for another year. The last thing you want to think about now is amending the return you just finished. Unfortunately, there are many times that you need to amend your return and doing so will be worth your time.

Some taxpayers are worried that filing an amended return will increase their chances of being audited. Amending the return will focus the IRS’s attention on your return but it will also extend your exposure to their challenges. The IRS looks back three years from the date you file a return. When you amend your tax return, you reopen the three-year window.

Millions of amended tax returns are filed by individual taxpayers each year. The reasons they amend vary, but the motivation is because it often can put money in their pocket. Here are some of the most common reasons to file an amendment.

 

1. Corrected 1099s or W2s

These forms are sent out to taxpayers by financial institutions (banks & brokerage firms), investment partnerships, employers, and places you have worked for on a self-employed basis. The deadline for sending these documents was February 15th. 1099- DIVs had an extended deadline of February 28th. The IRS penalizes issuers if they miss this deadline. The issuer may not have complete information in time to make the deadline. If so, they may send one out and then send a corrected copy when information is complete. It’s not uncommon for issuers to resend a corrected form months after sending the original. Although the corrected form may create only a small change in your tax liability, you still need to file an amended return, or you will not match the IRS records.

 

2. Windfalls Received Prior to Filing Deadline

Sole proprietors, S- Corporation shareholders, or members of a partnership can make pension or profit-sharing contributions for one year with money they received the following year. These contributions can be made up to the filing deadline including extensions. You could use a windfall received in 2018 to fully fund these plans for 2017. This would retroactively give you a larger deduction and entitle you to a refund.

3. Overlooked deductions

You go through your records and discover you missed a sizable deduction such as a charitable contribution. You can amend your return to claim the deduction.

4. IRS rules change

Sometimes the IRS clarifies a rule or a court ruling that could liberalize a tax break affecting your return.

 

5. Miscalculating your tax liability

Investors occasionally miscalculate their cost in an investment. This can happen with mutual funds or stocks that reinvest their dividends. Taxpayers count only their original purchase price and forget that reinvested dividends also add to their cost. They realize the actual gain is much lower than the amount reported to the IRS.

6. Worthless Security

You may come across a stock certificate you forgot about. When you try to deposit it in your brokerage account, they inform you the stock is worthless. You now have a capital loss you can claim on your tax return. The loss is deductible in the year it became worthless, not the year you discovered it. If this happens, you should file an amended return for that year. Treat worthless stock as a capital asset sold on the last day of the tax year it became worthless. Report worthless securities on Form 8949, Part I or Part II, whichever applies. Indicate as a worthless security deduction by writing Worthless in the applicable column of Form 8949. If you have more in capital losses than gains, then your loss can offset ordinary income up to $3,000. Net losses of more than $3,000 would need to be carried forward. You may need to amend additional returns until the loss is used up.

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