Saturday, April 16, 2011

Correcting Tax Return Errors

While most people consider a tax return finished on April 15 (or 18 in 2011), I don't consider a tax return final until three years after the original due date, which may include extensions. 
Each year I seem to learn about another tax deduction that I could have benefited from in a previous year. Although I am disappointed that I missed claiming the deduction, I know that I have three years from the original due date  to file an amendment to get an additional refund.  After three years, I will forfeit any refund, but can still file an amendment for informational purposes.  For reference, the IRS will allow unlimited time to file an amendment if I owe money :-)
In general, I believe that I can better spend my money than the government. So I will file an amended return to get the additional refund. Although I don't have a firm cutoff, I probably wouldn't file for an additional refund below $25  Below that, it probably isn't worth the effort to file an amended return.

To me, doing an amendment is a relatively easy process.  The return is done using the new information  and a new refund is calculated.  The difference from the previous refund received is determined and claimed.  The information is then put on a 1040X form which sent in with the schedules that were amended.  Around 8-12 weeks, a refund check arrives in the mail. 
Although I plan to file a correct return initially,  I won't consider our 2010 tax return  final until October 18, 2014, which is three years after the 2010 extended due date.  During that time I will probably find out about another deduction or credit I missed :-)
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This is not financial or tax advice. Please consult a professional advisor.

 Copyright © 2011 Achievement Catalyst, LLC


AS said...

Would you be willing to give examples from the last 2-3 years of deductions you found? Would be interesting to see what kind of things come up because presumably they aren't obvious at first.

Super Saver said...

Hi AS,

In my case, most of the missed deductions were on my state tax return, which offers deductions and credits different from the federal return. For example, our state doesn't require certain medical expenses to exceed 7.5% of income, as is required by the Federal tax return. Thus, some medical expenses are deductible on our state tax return even though they are not on the Federal return. I didn't figure that out until 3 years ago.

For the federal tax return, I neglected to file K-1 information from a limited partnership, since the net was a passive loss that could not be deducted against non passive income. However, the limited partnership did make money in one year. So I had to file amended returns for prior years to show the unallowed losses that carried forward and could be used to offset the positive income.