- Don’t worry! Tax return mistakes are common.
- Learn how to fix tax return mistakes.
- Find out how to file an amended return.
- Learn about superseding returns.
- Don’t procrastinate in responding to the IRS.
Generally speaking, tax return mistakes are a lot more common than you probably realize. Taxes have grown complicated and COVID tax relief has made many changes. The paperwork required to file proper tax returns is often convoluted. If you file your taxes yourself, you understand. But not to worry–Fiducial can help!
The 2020 tax year does not qualify as a "normal year"
Congress passed numerous tax laws before, during and after 2020 that apply to 2020. This made it one of the more complicated tax years in recent memory. Even seasoned tax professionals had a hard time digesting all of the changes that they and their clients are now dealing with. Many required hours of continuing education. All of this is to say that if you've just discovered that you've made a significant mistake on your tax return, the first thing you should do is stop and take a deep breath, and then call your Fiducial representative. It happens. It's understandable. Also, there are steps that you can take to correct the situation quickly. Just keep a few key things in mind, including that the mistake could be in your favor.
Fixing tax return mistakes
Here's what you need to know:
- You have three years from the date that you originally filed your tax return (or two years from the date you paid the tax bill in question) to make any corrections necessary to fix your mistakes or oversights.
- There's a good chance that the IRS will catch an income omission, math errors, or an incorrect deduction or tax credit. In this case, the IRS will probably send you a letter letting you know what happened and what you need to do to correct it.
- If fixing the mistake ultimately results in you owing more taxes, you should pay that difference as quickly as possible. Penalties and interest will keep accruing on that unpaid portion of your bill for as long as it takes for you to pay it. So, it's in your best interest to take care of this as soon as you can.
Common tax return mistakes
Many errors include not claiming tax benefits you are entitled to and cause you to pay more tax than required. You may have overstated or understated your income, or received a late tax document or K-1. To correct issues on an already filed return you generally need to file an amended return. You may use an amended return to make corrections to previously filed returns. The possible corrections include, but are not limited to:
- Overstating or understating income
- Changing an incorrect filing status
- Adding or deleting dependents
- Taking care of discrepancies in terms of deductions or tax credits
If any of the above apply to the error you've just discovered, you can — and should — file an amended return.
If you catch the error prior to the filing due date of the return, instead of filing an amended return, you can file what’s called a “superseding return” to replace the original return. The difference is that when you file a superseding return you submit a complete new return to take the place of the one originally filed. However, with an amended return, you fill out a special form (1040-X) and attach only backup forms or schedules that pertain to the change.
Take a deep breath
A sudden increase in your tax liability notwithstanding, it's again important to understand that errors on your income taxes aren't really worth stressing out about. The IRS understands that sometimes mistakes happen. They also have a variety of processes in place designed to help make things right.
If you have received a notice from the IRS about an error on your tax return, don’t procrastinate in handling it – address the issue(s) raised by the IRS right away. The same applies if you have discovered an error. Either way, you can contact Fiducial for assistance with responding to the IRS, preparing a superseding or an amended return, and requesting penalty abatement.
For more small business COVID-19 resources, visit Fiducial’s Coronavirus Update Center to find information on SBA loans, tax updates, the Paycheck Protection Program, paid sick and family leave, and more.