Major corporations have entire departments devoted to handling their financial affairs. Small business owners, not so much. If you're handling your own federal and state income tax returns, errors can happen, even if you're diligent and conscientious. Fortunately, many federal tax return errors are relatively easy to fix. However, when dealing with more serious tax return errors it’s usually wise to enlist professional help.
No Amended Return Needed
Math errors are among the most commonly reported tax return errors. Avoiding math errors is relatively easy if you file your tax returns electronically – because tax preparation software and online tax return programs include functions for checking mathematical calculations. However, if you discover a math error, whether on a paper return or an electronically filed return, don’t panic. if the error is minor, the IRS will automatically make corrections. You don’t need to attempt to correct the error unless you receive communication from the IRS.
If you are an entrepreneur who also has a full-time or part-time job, you’re required to file Form W-2 to report wages from your job. If you fail to include your W-2 form, the IRS will be in touch to request it. Likewise, if you are a solo entrepreneur, you’re required to file Schedule C along with Form 1040. If you inadvertently omit Schedule C, the IRS will be in touch to request it. In either case, it’s not necessary to file an amended return.
Missed Tax Payments
Discovering a missed required tax payments or quarterly self-employment payment can send many business owners and entrepreneurs into a panic. However, while such errors are significant, panic isn’t called for. If you have the means to make the missed payment, do so as soon as possible. Include a detailed letter explaining the circumstances behind the missed payment along with pertinent information such as your Social Security or Employer ID number.
Filing an Amended Return
Discovering significant errors, such as miscalculating income or incorrectly claiming a tax deduction on a tax return that has already been filed usually require filing an amended tax return. A separate amended return should be filed for each tax year – and each amended return should be mailed separately. Additional schedules should be attached to the amended return. If you owe additional tax, enclose payment with your amended return or as soon as possible after you discover the error. Amended returns must be submitted by mail. They cannot be filed electronically.
Individual taxpayers and single-member limited liability companies (LLCs) should file Form 1040X for amended returns. C-Corporations should file Form 1120X for amended returns, S-Partnerships should file Form 1120S. Partnerships and multiple member LLCs should file Form 1065 to submit amended returns.
If you are seeking an additional tax credit or refund, the deadline to file an amended return is 3 years after the date you filed your original return or extension or 2 years after the date you actually paid the tax – whichever is later. The deadline for filing an amended return does not apply if you owe additional tax.
Other forms related to amended returns include
- Form 94X – Employment Tax Adjustments
- Form W-2C – Corrected Wage and Tax Statement
- Form W-3C – Transmittal of Corrected Wage and Tax Statements
Discovering tax return errors, especially significant errors can generate anxiety and even fear in individuals and small business owners. The IRS has a well-deserved reputation for being tough on tax cheats. However, the IRS also recognizes that honest mistakes can occur, and is often willing to work with taxpayers to resolve their issues.
Given this fact, it’s advisable to act proactively to attempt to correct significant errors rather than waiting for the IRS to contact you. While it’s true that filing an amended return may result in additional taxes or penalties, in most cases, your additional tax obligation will be lower if you act to correct errors sooner rather than later.
Penny Wise, Pound Foolish
As an entrepreneur or small business owner, you may always look for ways to save money. However, skimping on obtaining tax-related advice is not advisable, especially if you’re faced with the prospect of filing an amended return or correcting another serious tax return error. The money you spend to consult with a tax professional now can potentially save you many times that amount in penalties and fees that you might incur down the line if you chose to go it alone.
Consulting with a professional is especially important if the IRS contacts you about a potential tax return error. The professional may discover that the IRS notice is in error. If the notice turns out to be accurate, having a professional can help ensure that your response generates the most positive outcome possible for you and your company.
Disclaimer: This article describes general circumstances concerning errors on federal income tax returns. It is not intended to provide financial or legal advice. Please consult with a financial advisor or tax attorney in your jurisdiction with specific questions concerning errors on your federal income tax return.