Sometimes you need a Tax “Mulligan”

The IRS understands that we taxpayers aren’t perfect. Sometimes a taxpayer may forget a sale of stock from an investment account, or an IRA distribution taken last January. I’ve even had cases where busy parents forget to tell me about their New Years baby who arrived and has already celebrated a 1 year birthday before I’ve even met them during tax filing season! Mistakes happen. When we fail to report those items on our tax return, however, there are several ways to set the record straight. In golf, players can agree on a “do-over” – a stroke without penalty to set things right again. This stroke is called a “Mulligan.” A tax expert can help you by selecting the right Mulligan fo

You don’t always need to amend a return to set the record straight.r you. Understanding the proper protocol is critical to resolving the error quickly.

tax-mulligan

Mathematical or calculation errors are one such example. Technology today allows the IRS to catch many of these errors for you. For example, in the illustration above, if you leave off a 1099, W2, or other income reporter, the IRS will send a proposed change notice and ask if you agree with their change. You’ll be given an allocated amount of time to respond with more information or an agreement.

Please be aware in a situation like this, however, that you may need to notify your state (possibly by filing a state amendment), otherwise it could be quite some time before your state government determines that the IRS has changed your return. If you owe additional state taxes, you’d want to calculate and pay those as soon as possible to prevent mounting late payment penalties and interest. Each state is different, so be sure to find and contact yours here:

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/State-Links-1

In a situation where filing status has changed (example: you married in December and filed single instead of Married Filing Joint or Married Filing Separate), you would need to file Form 1040X to correct the error. If a dependent was left off of your return (or was claimed by you even though another person should have claimed them), you will need to amend to correct this issue.

In general, amendments are designed to allow you to notify the IRS of a change to your filing status, income, deductions, or credits. If you are expecting a refund, you have 3 years from the time you filed a return to file an amendment (or 2 years from the date of your payment – whichever is later).

Amended returns are filed on paper – no efiling available. The returns may take 12 weeks (or longer) to process as they are processed by human hand, not machines. The returns may also take 3 weeks to even show up in the system. This is not a process for the impatient! Be sure to keep copies of your amendment and submit them via certified mail with a return receipt requested.

To check the status of your amended return, you can often use this tool:

http://www.irs.gov/Filing/Individuals/Amended-Returns-(Form-1040-X)/Wheres-My-Amended-Return-1

If you find yourself holding an IRS letter proposing changes to a return you filed, before you sign the form and submit a check, give us a call to help you determine if an amendment may be the better alternative to lower the tax bill at hand. Or, if you find that you’ve made an error, we’ll help you discover if an amendment would be cost effective for you.

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