How to fix your tax return after making a tax filing mistake
If you made a mistake filing your taxes, you aren’t alone. Federal Income Taxes are complicated. If we can get through a lifetime of tax returns without making a mistake, we should get some kind of award. Let’s look at three situations for tax return mistakes.
Your tax return is rejected when filing electronically.
The good news about the IRS not accepting your tax return when initially filing is you have the opportunity to fix it before it becomes a bigger problem, and by doing so, a long delay in your tax refund may be avoided.
When your tax return is rejected electronically, you often don’t know why it happened. But you can find out because the IRS sends a rejection code back with the electronic rejection. Your tax software will provide you with the rejection code and the reason associated with that code.
You can also contact the software provider’s help phone line or chat to get help understanding the rejection code. Once you know the reason, if it is something you can correct, all you have to do is correct it and resubmit your tax return electronically. The IRS has some guidance on rejected returns here.
Unfortunately, there are times a tax return can’t be corrected to submit electronically and has to be mailed in. One of those cases is if someone already filed a tax return using one of the social security numbers on your tax return. If that is the case, you may be the victim of identity theft, and you can find guidance for that situation here.
You realize after you file your tax return that there was an error.
The most common “realized error” is when a tax document comes in after the tax return is filed. This can be a W-2 for a person who has had multiple job changes. Sometimes it is bank interest or an investment that the taxpayer forgot about. Unfortunately, sometimes it is canceled debt (reported on a 1099-C) that is often taxable.
No matter the reason, if a fix is needed, the IRS has a process for this. You have to file an amendment, Form 1040-X Amended U.S. Individual Tax Return. Amendments can often be filed electronically, and those filed electronically are usually processed faster than those submitted through the mail. Using the same software you used for the original tax return filing will usually be easier than preparing the amendment in different software.
Please note that if you file an amendment before the original return is processed, that can cause delays in processing. If you are expecting a refund, this can delay the tax refund. But if the tax refund is received based on the original tax return and if you have to pay some of it back, there may be penalties and interest applied.
You may choose to delay the amendment if the original tax return is still being processed so as to avoid any complications and to possibly get a refund in a timely manner. But that choice may come at the price of penalties and interest if some of the refund has to be returned.
If you aren’t sure whether or not an amendment is required or how to do the amendment properly, this may be a good time to seek out a tax professional for help. Some tax software providers may be able to provide that help for an additional fee.
You realize there was an error when you receive an IRS letter.
IRS letters identifying potential tax return errors provide directions on how to deal with the errors. You can call the IRS for clarification.
Sometimes dealing with the error will require you to file an amendment. Other times, you simply have to pay the IRS money. If you are unable to pay, you can set up a payment plan.
There are occasions when the IRS identifies an error, which will result in you receiving a refund (or additional refund), and in those cases, if you need to perform any actions, the letter will indicate what actions are needed.
Make sure the IRS letter is not fake. You can do this by calling the IRS at 1-800-829-1040. Make sure you understand the letter before taking action and make sure you keep the letter with the applicable tax return and tax documents. IRS letters often have deadlines for actions, so make sure you meet any deadlines. If you do owe money, the longer you take to address it, the more interest and penalties you will ultimately pay.
If the situation is overwhelming or confusing, it can be a good time to seek professional help. In some cases, the IRS Taxpayer Advocate Service can make sense and for others seeking out a tax professional may make sense. You can read more about dealing with IRS letters here.