Getting Your Taxes Right, the Second Time Around

From Roni Deutch on CNBC's On the Money Blog:

We all make mistakes, even on our taxes. An incorrect filing status, a missed credit or deduction, confusion about claiming dependents: any of these can happen to anybody. If you discover a mistake on your tax returns after you’ve filed you should immediately file an amended return.

The IRS will correct math errors or request missing forms—such as W-2s or schedules—when processing your original return. In these instances, do not amend your return. However, you should file an amended return if any of the following were reported incorrectly:

• filing status

• dependents

• total income

• deductions or credits

Amended returns allow you to fix errors on previously filed returns, which could result in an extra refund or an increased tax bill. Either way, you are better off getting it right the second time around than not at all. If your amended return shows you get an extra refund, well of course you’ll want to get your hands on that money.

But why would you amend your returns if it shows you owe more in taxes?

The IRS will look more favorably on your situation when you voluntarily fix it than if they discover the error and come to collect. Remember that they have the right to audit you for any reason for three years after you file your return. If they found out that you underreported your income and owe additional taxes they are going to want that amount plus interest and penalties. By bringing the mistake to light sooner, you may receive some leniency on penalties and be able to set up payments plans, depending on your individual circumstances.

To amend a return, simply fill out form 1040X (pdf) making sure to follow all instructions, and provide clear concise explanations of the changes you are making to your original return. If the changes involve another schedule or form, make sure to attach a corrected version of the form or schedule to the 1040X. If you need to file for multiple years (you can amend any return for three years after it was due), fill out one 1040X and a new 1040 for each year, noting the tax year at the top of each page, and mail each tax year’s forms in separate envelopes. Please note that you cannot e-file an amended return.

For full instructions on filing an amended return, visit www.irs.gov.