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| Why should you file an Amended Tax Return? |
A. To correct a filing status.
B. You used the wrong stock basis in a prior year and paid too much tax.
C. A natural disaster destroyed your home.
D. You filed a short form (1040A or 1040EZ) and you realize you could itemize.
E. All of the Above.
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Answer: E: All of the Above
In 2002, 3.4 million amended returns were filed, and in 2005, the IRS is expecting about 3.8 million returns. Mistakes occur, and if you need to file an amended return, you should not hesitate. Why are amended returns filed? Some reasons amended returns are filed are to correct a filing status, to report income that was overstated or omitted, to claim a deduction, exemption or credit that was overlooked, or to comply with a Congressional change in the tax laws, just to name a few.
To amend your return, use Federal form 1040X, and NYS IT-201-X. These forms are not difficult to follow. If you used computerized software, the program will complete the form for you, or better yet, if you used a paid preparer, it’s even easier – let him/her do it. The changes you make can affect various other items on your tax return. Increasing or decreasing income, for example, can change the taxable portion of your social security, the interest deduction on student loans, the credit for children under age 17, the child and dependent care, the educational credit, the medical expense deduction, as well as the miscellaneous deductions.
Change Of Filing Status
Married Separate to Married Joint: If you filed separate returns, and now realize that filing jointly will save you some tax dollars, go ahead. No problem. File the 1040X. You have three years from the filing date
Married Joint to Married Separate: To change to ‘married filing separately’, however, you need to file before the due date for the year in question. Then there will be two tax returns to file: a 1040X for the spouse whose Social Security number appears first on the 1040, and a new 1040 for the other spouse. Generally, once you have filed jointly, you’re stuck with it, even if you divorce.
However, as with most tax laws, there is an exception – an annulment. An annulment undoes the marriage from its beginning. The tax law says that your marital status as of December 31 determines your filing opportunities. If you qualify for this exception, you will need to file an amended return as a single taxpayer for all years that are not closed by the statue of limitation (which is usually three years after the original filing).
Do You Have The Correct Stock Basis?
Have you inherited any stock? Have you reinvested the dividends and capital gains of your mutual funds? These are the most common errors which cause investors to overpay the IRS.
When you inherit an asset, your basis (cost) is the value of the asset at the time of death. This is true for stock or a house – including primary homes and rental real estate.
When you sell your mutual funds, the cost basis may need to be adjusted upwards if over the years you reinvested any dividends and capital gains of that fund. These dividends and capital gains were taxed on your returns, but you never received any cash. Instead you purchased additional shares of the fund. The IRS is only informed of the sale of the stock, not what you paid. The IRS does not have this information. Although many mutual fund companies now keep records for you, many more companies do not. It is important that you keep all these records going back to your first purchase of the stock. (If you don’t have the fund information, you might find out what you need from your old tax returns.) If you have sold any stock this year, call the company or your broker now - do not wait until tax season.
More Reasons
There may be other reasons to file an amended return, like a natural disaster, or realizing that itemizing may save more money. For any question, ask your tax preparer, or the IRS. Remember, the only stupid question is the one that is never asked.
When To File The Amended Return?
There is a statue of limitations to file amended returns. In general, the return must be submitted by the later of either three years from the filing date, including extensions, of the original return, or two years from the time taxes were paid. Note that a return filed before April 15, is considered filed on April 15 for these purposes. If you file, even one day late, your refund will be denied.
If you filed timely, you should review your 2003 return (due April 15, 2004). After April 15, 2007, it’s all over for a refund.
If that April time is getting close, I suggest you hand deliver your amended return to the local IRS office, and get a date-stamped on both the government copy of the 1040X, and your copy. (This applies to going to the NY State office as well.)
You may contact Joseph Reisman: Tel: 718-332-1040; Fax: 718-743-2721; E-mail: JSReisman@TaxHelp1040.com; Mail: 2751 Coney Island Avenue, Brooklyn, NY 11235-5004
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Posted on Jul 25, 2006 00:10am by JSREISMAN
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