The Internal Revenue Service. Source: dctim1 / Flickr

Telling Tips is a series of articles from local experts to help you save money, make better decisions and plan for a better future.

Why 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 realized you could itemize.

E. All of the above.

Answer: E: All of the above.

Every year millions of amended returns are filed. Mistakes occur, and if you need to file an amended return, you should not hesitate. Why file an amended return? Some reasons amended returns are filed are to correct a filing status (single or head of household to married, 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 statute 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. This is also true if you inherit property that was in a life 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. Beginning with 2011, the brokerage companies have more of a responsibility to track your activity.

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 now review your 2009 return (due April 15, 2010). After April 15, 2013, it’s all over for a refund.

As that April deadline gets closer, 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.)

Checking On An Amended Return Refund

Checking on an amended return refund is a little different than checking on your original return refund. If searching for one’s refund information, ‘where’s my refund’ on the IRS site cannot be used. It doesn’t have amended return information. You should allow eight to 12 weeks to receive a refund from an amended return.

After about eight weeks have passed, you can call 1 (800) 829-1040. When calling this number, make sure you have the original return available. They will need to know your filing status, exemptions excluding yourself, and amount of refund expected. Before requesting this information, they will need your birth date, address, and Social Security number to verify they are speaking to the right person.

They can let you know when they received your amended return and what stage of processing it is in. They will also tell you on what date you should receive your refund if it takes 12 weeks. They will also tell you to feel free to call back anytime if you are concerned about your refund.

Although checking on an amended refund is not as fast as checking on an original refund, the people that assist you are really nice and make you feel comfortable. There’s also something to be said this day and time about speaking to a live person. This, alone, makes a person feel more at ease when requesting their refund status. The process of speaking to someone on the phone may take a little longer, but if you have all your information available, it will go smoothly.

If you have questions, or need help filing, call my office at (718) 332-1040.

Have a good week.

Weekly quip: We hang the petty thieves and elect the great ones to public office.

Joseph Reisman, of Joseph S. Reisman & Associates, has been serving tax prep and business accounting expertise from his Coney Island Avenue office for more than 25 years. Check out the firm’s website.

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