Should you file a Form 1040X amended return, or just wait and hope?

Thankfully, potential tax issues cannot haunt you forever. The statute of limitations provides you three years to claim a refund, and also gives the IRS three years to audit you and assess additional taxes. So in general, the IRS will not audit returns which are more than three years old, and the agency claims that it tries to perform most audits within two years of a filing. But it's important to note that this 3-year limit is not a bulletproof legal protection. If a "substantial error" (e.g. fraudulent return, or a finding that more than 25% of your actual income was omitted from a return) is identified, the IRS can audit returns up to 6 years old. Finally, the IRS has up to 10 years to collect any tax liabilities owed by you.

Reasons to file an amended tax return

Amended returns are used to correct any information that will alter how your taxes are calculated. However, the IRS says you don't need to file an amended return if you simply made mathematical errors or forgot to include required schedules or attachments. The agency will correct your math errors for you, and they will also send you a request for any missing paperwork.

Common reasons (things that might alter your calculations) for amending a return include:

  • Changing the number of dependents you claim
  • Changing your filing status (married, single, joint etc.)
  • Reporting income that was not included on your original return
  • Changing the exemptions or credits you claim (both types and amounts)
  • Correcting withholding figures for income you have reported
  • Changing the deductions you take

Tips for filing your Form 1040X properly

As stated above, a Form 1040X is essentially a replacement Form 1040. The 1040X contains your corrections for the same pieces of information you submitted with your original 1040. Keep the following in mind to ensure your Form 1040X is completed correctly to avoid trouble:

  • Choose the right year at the top of the form (the year of the return you are amending)
  • If the information prompting your amendment affects the tax calculations for more than one year, you need to file a separate Form 1040X for each year affected
  • When you complete and attach forms and schedules for your amended return, use the documents for the year you are amending, which may be different from the most current versions available
  • Be clear and concise when completing Part III, "Explanation of Changes" on your Form 1040X. This is where you give a description of the reasons you are amending your return, and which items you are changing. If you prefer, you can attach a separate statement explaining your changes instead of using the box in Form 1040X.