Generally speaking, tax return mistakes are a lot more common than you probably realize. Taxes are naturally complicated, and the paperwork required to file them properly is often convoluted. This is especially true if you’re filing your taxes yourself — and all of this is in reference to a fairly normal year as far as the IRS is concerned.
The 2018 tax year, however, certainly does not qualify as a “normal year.”
With the passage of the Tax Cuts and Jobs Act, even seasoned financial professionals are having a hard time digesting all of the changes that they and their clients are now dealing with. All of this is to say that if you’ve just discovered that you’ve made a BIG mistake on your tax return this year, the first thing you should do is stop and take a deep breath. It happens. It’s understandable. There ARE steps that you can take to correct the situation quickly — you just have to keep a few key things in mind.
Fixing Tax Return Mistakes: Here’s What You Need to Do
All told, 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. If nothing about your return ultimately changes, you probably don’t have anything to worry about — in fact, there’s a good chance that the IRS will catch the mistake and fix it themselves. This is especially true in terms of math errors, or if you’ve left out an important document. 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 afford to do so.
If you’ve made a much larger mistake (like if you understated or overstated your income, for example), you’ll need to file what is called an amended tax return. This is essentially your “second chance” at getting things right, and the timetable above still applies.
Understand, however, that ALL errors must be corrected in the amended return. This means that if you find three errors that will reduce your tax liability and two that actually increase it, you are legally required to correct all five. You can’t correct only the mistakes that benefit you.
An amended return can be used to correct a variety of issues, including but not limited to ones like:
- Overstating or understating your income
- Changing an incorrect filing status
- Accounting for 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 absolutely should — file an amended return.
A sudden increase in your tax liability notwithstanding, it’s again important to understand that even “major” errors on your income taxes aren’t really worth stressing out about. The IRS understands that sometimes mistakes happen, and they have a variety of processes in place designed to help make things right.
This does, however, underline how valuable it can be to partner with the right financial professional to do your taxes next year. You’ve got a career and a life to lead — you’re probably not going to be up to date on every small change that rolls out in the tax code. A financial professional will, as it is literally their job to do so.
If nothing else, this will help generate some much-needed peace-of-mind regarding the accuracy of your return. You won’t have to worry about whether or not the IRS is going to find some big mistake down the road because you’ve dramatically reduced the chances of those mistakes happening in the first place. If you have any questions related to your taxes, contact the Experts at Henssler Financial: