5 amended tax return filing tips


To err on tax returns is human. To forgive is Xtraordinary, and yes, the misspelling is intentional.

Tax law lets us correct mistakes we make on our 1040s via another form, the 1040X.

Most people file 1040X, which is known as amending your return, because they discovered they didn’t claim a tax break that give them a (or a bigger) tax refund.

Of course, since the Internal Revenue Service is involved, there are some rules and certain steps you must follow.

Here are five key things to keep in mind if you discover you need to re-do a previously filed tax return.

1. Meet the deadline.
To claim a refund based on amended return information, you must file Form 1040X within three years after the date you filed your original return or within two years after the date you paid the tax, whichever is later.

If you filed your original Form 1040 (or 1040A, 1040EZ, 1040NR or 1040NR-EZ) before the April due date, the IRS considers it filed on the April deadline.

2. Many errors mean many X files.
Sometimes finding an error on one tax return leads to the same distressing discovery on other 1040s. In these cases, you must file a separate Form 1040X for each year you are amending.

And you can’t just mail those added corrections in one envelope. Mail each 1040X in a separate envelope.

And yes, I’m talking about old-fashioned envelopes and snail mail.

While the IRS has made much progress in going electronic, you can’t e-file an amended return. Yet. The IRS is working on that, but for now it’s still paper and pen and U.S Postal Service stamps when you’re working on a 1040X.

1040X_Rev January 2017

3. Complete the columns.
Although the 1040X corrects mistakes made on the standard tax filing forms, this X form has a different look.

The key area of focus on an amended return is the form’s page 1 three columns. They cover the information you need to supply, specifically:

  • Column A for the figures you put on your original return. If you previously amended that return or it was changed by the IRS, enter the adjusted amounts.
  • Column C for corrected amounts that prompted you to fill out the amended return form.
  • Column B for the difference between Columns A and C. Any negative amounts should be shown in parentheses. The IRS also wants you to explain each change here in Part III of the 1040X.

That’s right. Instead of going from column A to B to C, Form 1040X has you go from A to C and then to B.

What can I say other than IRS.

This example, adapted from the Form 1040X instructions, looks at taxpayer Sheila, who originally reported $21,000 as her adjusted gross income on her 2015 Form 1040.

Sheila received another Form W-2 for $500 after she filed her return. To account for that added income, she completes line 1 of Form 1040X as follows:

  Col. A Col. B Col. C
Line 1  21,000  500  21,500

Sheila also would report any additional federal income tax withheld that’s shown on the new W-2 on line 12 in column B of her 1040X.

4. Supply back-up information.
As mentioned in #3, the IRS likes details on your 1040X changes. That’s why there’s an area on the back of the form — Part III: Explanation of Changes — to elaborate on why you’re making the changes shown in other parts of the amended return.

Fill our Part III.

Also attach copies of any forms or schedules that are affected by the 1040X changes. This includes any W-2 forms and even 1099s for miscellaneous income if those docs show you had any income tax withheld.

5. Double check your state returns.
If you live in a state with some sort of personal income tax, any changes you make to a prior federal 1040 likely will affect your previous state returns, too.

Check with your state tax department about the process for amending those forms, too.

Amending when it costs you more: Most of the time, folks file a 1040X because they inadvertently cheated themselves out of some tax savings. That’s a wise move.

But you should file a 1040X even if you discover a mistake or oversight that means you owe Uncle Sam more tax money.

Why? Well, the main reason is that you’re an honest person.

The other big reason is money. Really.

Yes, fixing tax errors that short-changed the U.S. Treasury will cost you. Not doing so as soon as you find them could cost you more because the IRS is likely to also eventually discover your underpayment.

When that happens, be it mere months or many years later, the IRS will come after you for the unpaid amount plus those dreaded penalty and interest charges that have been accruing.

If you catch and fix the unpaid tax mistake first, your Form 1040X filing will stop those added charges as soon as the IRS gets the corrected information.

You also might find these items of interest:



Source: http://www.dontmesswithtaxes.com/2017/10/form-1040x-amended-return-for-fixing-tax-filing-mistakes.html


Made a tax-filing mistake? Fix it with 1040X

There’s an old tax myth that filing an amended tax return will get you audited.

Erasing mistakes

Not true.

In fact, failing to correct an error you made on your original tax return is more likely to cause you more tax trouble. When the Internal Revenue Service discovers the mistake, and the agency likely eventually will, you’ll owe the tax due and penalties and interest.

And if you fail to claim a tax break on an amended return that you overlooked when you first filed, then you’re the one cheating yourself out of tax savings.

An effort worth making: I know, dealing with the IRS more than you absolutely have to is a pain. But filing an ed return generally is a good idea, whether it gets you missed tax savings or causes you to owe a bit more than you thought.

The key is getting your tax house in proper order for better or worse. That will keep the IRS out of your life long-term.

It’s not hard to fix an error or claim an overlooked tax break. Details are in the latest Weekly Tax Tip that focuses on how to fix tax mistakes with amended return.

Check out the full story for specifics. In the meantime, here are four highlights.

1. Meet the deadline: To claim a refund based on amended return information, you must file Form 1040X within three years after the date you filed your original return or within 2 years after the date you paid the tax, whichever is later.

If you filed your original Form 1040 (or 1040A or 1040EZ) before the April due date, the IRS considers it filed on the April deadline.

2. Make old-fashioned corrections: File a separate Form 1040X for each tax year you are amending. And mail each form in a separate envelope.

Yes, I said mail. You can’t file an amended return electronically, yet. The IRS is working on changing that.

3. Complete the columns: The 1040X has three columns of info you’ll need to supply. They are —

  • Column A is where you enter the figures you put on your original return.
  • Column C shows the corrected figures, that is, the amounts that are why you are filing the 1040X.
  • Column B is the difference between Columns A and C.

Form 1040X excerpt

Yes, Form 1040X is a perfect example of why doing your taxes drives you crazy. Instead of A to B to C, on the amended return you go from A to C and then to B.

4. Supply back-up info: There’s also an area on the back of the form to explain the specific changes you are making and the reason for each change. Fill it out.

And attach copies of any forms or schedules that are affected by the 1040X changes. This includes any W-2 forms and even 1099s for miscellaneous income if those docs show you had any income tax withheld.

Get ready to wait: If your 1040X will get you some additional refund money, don’t go spending it just yet.

The IRS says that it can take up to three weeks from the date you mailed your 1040X for the document’s information to show up in the agency’s system. Remember, it has to be delivered, opened and then the data entered by an IRS employee into the tax collector’s main computer.

Overall, warns the IRS, it can take the agency up to 16 weeks for your amended filing to be processed.

Don’t call us … : An anxious taxpayer’s natural inclination is to check on his or her amended filing. You can do that, but put your phone down.

“Unfortunately, calling us will not help us process your return more quickly,” says the IRS.

Instead, use the agency’s online tool Where’s My Amended Refund? This option will give you the status of your current year amended return, as well as up to three prior years of 1040X filings.

If you do insist on calling, the IRS wants you to use its dedicated amended return toll-free hotline at 866-464-2050.

You can start checking on the status of your 1040X filing, either by phone or online, three weeks after you mail your amended return.

I know it’s a hassle. But filing a 1040X could get you some more tax refund money.

And even if it doesn’t, it’s always better to make sure you are in good standing with Uncle Sam’s tax collector.

You also might find these items of interest:

Source: http://www.dontmesswithtaxes.com/2017/10/how-to-file-an-amended-tax-return.html

Summary and Observations on Tax Reform Framework

On 9/27/17, the Big 6 released their tax reform framework to guide the drafting of tax reform legislation (see my 9/30 post for links). Here is my summary and observations:

9-page framework
Lots of details are missing such as where rate brackets start and end, rate on investment income, and what “loopholes” will be closed.
Standard deduction of $24K for MFJ and $12K for single
Will the head-of-household filing status continue?
Personal and dependency exemptions are removed.
The stated deductions are almost double the current amounts.
Individual rates: 12%, 25% and 35% and perhaps a rate above that for high income individuals for progressivity.
Today, lowest bracket is 10% and highest is 39.6%.
Will there be a special rate for investment income, including today’s 0% rate that applies to some capital gains?
Where will these brackets start and end?
Child Tax Credit – phase-out limits increased; first $1K is refundable.
Non-refundable credit of $500 for non-child dependents.
Today, CTC only applies to children under age 17 while dependency might go up to age 23 (full-time student).
If all workers are to get a higher paycheck and today about 45% of individuals pay no income tax due to low income, even if they get a higher refundable child credit, it won’t affect their paycheck.
Only itemized deduction for home ownership and charitable contributions remain.
Repeal of state tax deduction can result in tax increase for many taxpayers.
Repeal of medical expense and casualty loss might adversely taxpayer’s ability to pay.
Preferences “that encourage work, higher education and retirement security” are retained.
No details provided. Is the preference that encourages work the EITC? Will education provisions and retirement plan options be streamlined and simplified?
Individual and corporate AMT repealed.
What happens to any minimum tax credit a taxpayer is carrying forward at date of enactment?
Repeal of other provisions.
What might this include?
Repeals estate and GST taxes.
What happens to basis of assets at date of death?
Will the gift tax remain?
Corporate rate is 20%.
Per the framework, the average corporate rate among industrialized countries is 22.5%.
The rate for “business income of small and family-owned businesses is 25%. There will be measures to “prevent recharacterization of personal income into business income.
Assuming there are rate cuts, less than 5% of owners would possibly even be in a rate above 25%. There are still payroll tax considerations and make it important that all non-C corporation owners distinguish services income from return on capital invested in the business.
Double taxation of corporate income might be addressed.
Senator Hatch has discussed corporate integration via a dividends paid deduction approach with withholding.
Expensing of new investments in depreciable assets other than structures, made after 9/27/17 will be expensed, at least for the first five years.
This is the only mention of a date in the framework. Will it include expensing of intangibles as well? New or also used property? Why five years only? What happens after that? The five years is likely due to the need to keep the bill revenue neutral by year 11 due to the budget reconciliation. Will temporary rather than permanent expensing adversely affect the economic growth projections? The Tax Foundation says yes (Pomerleau, “Economic and Budgetary Impact of Temporary Expensing,” 10/4/17).
Net interest expense of C corporations is “partially limited” and a similar treatment for other entities will be considered.
There are likely two rationales for limiting the interest expense deductions: (1) a revenue raiser, and (2) if assets are expensed and debt-financed, the effective tax rate is very low, perhaps even zero or negative; thus warranting a limitation on the interest expense.
§199 manufacturing deduction will be repealed.
No surprise here as this measure is really just a rate cut for many taxpayers, but added complexity.
Various unnamed tax preferences will be repealed or cut back. Only the research and low-income housing credits will remain.
The rationale for keeping the research credit is likely because other countries with a lower tax rate also have research incentives. Also, this credit exists not only for its incentive effect, but also to address the spillover effects when a company engages in R&D but others benefit from it as well.
Changes will be made to tax rules for specific industries to “better reflect economic reality” and reduce tax avoidance.
No examples are provided.
For businesses, worldwide taxation will be replaced with territorial with a 100% exemption for dividends from foreign subs (if the U.S. parent owns at least 10%). Transition rules will include deemed repatriation with a rate lower for illiquid assets than for cash and cash equivalents. Payment will be spread over several years. To prevent shifting certain income to tax havens, there will be a reduced tax rate on the foreign profits of U.S. multi-national companies
Many details are missing here including the deemed repatriation tax rate, the period for paying the tax, and what other rules will need to change due to the shift to a worldwide tax system.

The plan also states President Trump’s President Trump’s Four Principles of Tax Reform:

1.      Simple, fair, easy to understand
2.      Give American works a pay raise.
3.      Make America a jobs market of the world
4.      Bring back trillions of dollars of unrepatriated earnings.

What do you think?
Source: http://21stcenturytaxation.blogspot.com/2017/10/summary-and-observations-on-tax-reform.html

Tax tips to help you meet the Oct. 16 filing deadline

Finger_pointing to rightIt’s that time of year again. Monday, Oct. 16, the absolute final tax return filing deadline.

Don’t panic. You’ve still got a few hours to fill out and submit your 2016 Form 1040.

The latest Weekly Tax Tip, over there at the top of the ol’ blog’s right column, has 10 tax tidbits to help you through today.

You also can find more tax tips in this year’s previously posted Daily Tax Tips, conveniently archived on their own by-month pages: January, February, March and April.

Good luck with your 2016 return today. And remember, when you’re done with that (yay!), you can find more Weekly Tax Tips — a new one posted every Wednesday through the end of the year — to help you avoid problems and save on your 2017 taxes. 

Source: http://www.dontmesswithtaxes.com/2017/10/tax-tips-to-help-you-meet-the-oct-16-filing-deadline.html

Cook County soda tax goes flat

Cook County residents line up to comment on soda tax_Hal Dardick via Twitter

Cook County residents lined up last week to tell county commissioners what they thought about the board’s proposed soda tax. (Photo by Hal Dardick via Twitter)

Cook Cook County officials implemented a tax on sugary beverages this summer. That levy, which was designed to (1) promote healthier habits among Chicago-area residents, (2) raise more much needed money for the Illinois county or (3) both, has fizzled.

On Wednesday, Oct. 11, county commissioners voted 15-2 to repeal the penny-per-ounce tax, which, like similar proposals, is usually referred to as a soda — or pop in the Midwest — tax. Collection of the tax will end on Dec. 1. 

Immediately unpopular pop tax: Even though the soda pop tax’s demise means Cook County now must find another way to plug the $200 million hole in its fiscal 2018 budget, the vote was not a surprise.

As soon as it was proposed last year, the penny-per-ounce tax came under aggressive attack from store owners, drink companies and bottlers.

Baylen Linnekin says in an analysis for Reason that the greater-Chicago-area tax went flat because “everybody realized it was about bringing in money, not improving public health.”

Toni Preckwinkle, Cook County Board of Commissioners president and the soda tax’s sponsor and staunchest supporter, disagrees.

Raising revenue was never my first choice,” Preckwinkle said over the course of the bill’s debate. “This measure provides important revenue, not only to avoid damaging cuts for public health and public safety systems, but also to expand our community-based interventions in both arenas.”

Soda tax debate will bubble up again: While Cook County’s action might not bode well for future soda tax proposals elsewhere, I don’t see the idea totally losing its sparkle.

Local jurisdictions nationwide are thirsty for any and all revenues sources.

That’s why the debate and Linnekin’s and Preckwinkle’s positions share Shout Out Sunday honors.

And with that, it’s now time for my lunch with, of course, a Coke.

Kay Coca-Cola montage

Despite the many Coke options in our pantry, I had to resort to editing a label to get one with my name! (Photos by Kay, not Katy, Bell)

You also might find these items of interest:



Source: http://www.dontmesswithtaxes.com/2017/10/cook-county-soda-tax-goes-flat.html

California, U.S. territory taxpayers get disaster tax relief

Barranquitas Puerto Rico damage 100917 aerial view_FEMA- Andrea Booher

Aerial view on Oct. 9 of a damaged home in the mountainous area of Barranquitas, Puerto Rico. After Hurricane Maria, many homes, businesses, roads and bridges suffered major damages due to strong winds and heavy rain. (Photo by Andrea Booher, FEMA)

To borrow from James Taylor’s plaintiff classic, the Internal Revenue Service has seen fire and rain and is making tax accommodations for Americans having to deal with those disastrous aftermaths.

Hurricane Maria made landfall in Puerto Rico on Sept. 20, pummeling the U.S. territory with category 5 force. Three weeks later, many of the island’s 3.4 million residents are still without power, drinking water, food and medicine.

While Puerto Ricans and the federal government struggle with how to meet those needs, the IRS at least has taken steps to relief them and fellow Americans in the U.S. Virgin Islands of some tax worries.

Tax domicile leeway: The IRS issued guidance on tax relief for Puerto Rico and the U.S. Virgin Islands residents who evacuated the islands or haven’t been able to get back to their homes after Hurricanes Maria and Irma, which damaged USVI’s two northernmost islands on Sept. 6, hit.

Time spent in other locations can affect a person’s domicile, which is his/her permanent residence to which he/she intends to return. The general tax rule is the 183-day presence test, which requires individuals to be in the location where they claim residence for that amount of time during the tax year.

Residents also can typically include up to 14 days within that 183-day period because of a declared disaster. However, because of the extent of the damage from the recent hurricanes, the IRS has extended the usual 14-day absence period to 117 days, starting Sept. 6 and ending Dec. 31, for the presence test for residency under the tax rules.

Someone who is absent from either U.S. territory on any day during this 117-day period will be treated as leaving or unable to return to the territory because of either storm. This added time should protect them otherwise losing their status as bona fide residents of Puerto Rico or the U.S. Virgin Islands for tax filing and reporting purposes.

IRS Publication 570 has details on the presence test for residents of U.S. territories. IRS Notice 2017-56 elaborates on the 14-day extension in the wake of Irma and Maria.

More time for USVI filers: In addition, both Puerto Rico (PR) and U.S. Virgin Islands (USVI) taxpayers have been given additional time to file required taxes. The IRS relief is similar to the filing extensions granted individuals and businesses in Texas after Hurricane Harvey and Florida and Georgia after Hurricane Irma.

In the case of U.S. Virgin Island taxpayers affected by Hurricane Irma, the IRS says these residents of St. Croix, St. John and St. Thomas who face certain tax deadlines falling on or after Sept. 5 and before Jan. 31, 2018, now have until the end of next January to file.

This covers taxpayers who had a valid extension to file their 2016 return on Oct. 16.

It also includes the quarterly estimated income tax payments that were originally due on Sept. 15 and which are due on Jan. 16, 2018, as well as quarterly payroll and excise tax returns normally due on Oct. 31. Tax-exempt organizations that operate on a calendar-year basis and had an automatic extension due to run out on Nov. 15 also now have until Jan. 31, 2018, to file.

More time for PR filers: Residents and business owners in any of the 78 municipalities in Puerto Rico also get more time to take care of tax tasks.

The IRS has postponed certain deadlines for these PR taxpayers in the wake of Hurricane Maria, specifically with regard to due dates falling on or after Sept. 17 and before Jan. 31, 2018. In these cases, the new deadline is the end of January 2018.

With some exceptions, the IRS extended many of these deadlines earlier following the disaster declaration for some PR municipalities hit by Hurricane Irma.

The new Jan. 31, 2018, deadline includes taxpayers who had a valid extension to file their 2016 return by Oct. 16. It also covers quarterly estimated income tax payments due on Jan. 16, 2018, and the quarterly payroll and excise tax returns normally due on Oct. 31, 2017.

And tax-exempt organizations that operate on a calendar-year basis and had an automatic extension due to run out on Nov. 15 now have until next January to do so.

California wildfire tax relief: More than 3,000 miles across the country, the IRS also has issued tax relief guidelines for Californians affected by wildfires.

Plane drops fire fighting treatment on Napa-Sonoma County fire_via CAL_FIRE Twitter

Firefighting plane treating the Tubbs Fire in Napa-Sonoma County, California. (Photo by @atomicdog4 via @CAL_FIRE Twitter feeds)

So far seven California counties — Butte, Lake, Mendocino, Napa, Nevada, Sonoma and Yuba — are covered under federal disaster declarations. Residents in those Golden State counties now have until Jan. 31, 2018, to file certain individual and business tax returns and make certain tax payments.

Firefighters and relief workers who live elsewhere but are in the counties helping extinguish the flames and assist those affected by the fires also qualify for the extension.

Again, the new end-of-January-2018 due date covers extensions that are due Monday, Oct. 16. Calendar-year tax-exempt organizations with filing extensions until Nov. 15 also can now put that off until next January.

Business tax deadlines that are postponed include the Oct. 31 deadline for quarterly payroll and excise tax returns. The IRS also says it will waive late-deposit penalties for federal payroll and excise tax deposits normally due after Oct. 8 and before Oct. 23, if the deposits are made by Oct. 23, 2017.

No added effort for eligible taxpayers: If you qualify for any of these extensions until Jan. 31, 2018 — which is this week’s By the Numbers figure — you don’t have to do anything extra.

The IRS notes that it automatically provides filing and penalty relief to any taxpayer with an address of record located in the disaster areas.

If, however, you do qualify but get a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, call the number on the notice to have the penalty abated.

And if you live outside the disaster area, but records you need to meet a deadline are in the affected zone, contact the IRS at (866) 562-5227 and explain your situation. The agency says it will work with folks in such situations.

Such tax accommodations also apply to firefighters and workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization.


Source: http://www.dontmesswithtaxes.com/2017/10/california-us-territory-taxpayers-get-disaster-tax-relief.html

Can tax reform solve more problems

The key problems that today’s federal tax reform aims to resolve is to lower the corporate rate and move to a territorial system rather than worldwide to improve international competitiveness for businesses. It also calls for some level of simplification, but there aren’t enough details yet to judge that. Proponents, such as the “Big 6” who released a framework on 9/27 (see xxxx post), also want to increase economic growth.

Elements of the framework to boost economic growth are the lower corporate tax rate and expensing of business assets (either for a few years or permanently). Is that the only way to boost economic growth? Can more be done? Probably.

I raise this issue after reading a proposal from Congressmen Neal and Whitehouse:

H.R. 3499, Automatic IRA Act – “to expand personal saving and retirement savings coverage by enabling employees not covered by qualifying retirement plans to save for retirement through automatic IRA arrangements, and for other purposes.”

Their  9/26/17 press release states that they project that this bill could “boost national savings by nearly $8 billion annually.”

Is there some intersection of ideas here?  Greater savings can also tie to investment in business expansion to help fund economic growth. And we know that people are not saving enough for retirement. Per the sponsors of HR 3499, about 90% of small to mid-size businesses do not offer retirement plans for their workers.

What do you think?

Source: http://21stcenturytaxation.blogspot.com/2017/10/can-tax-reform-solve-more-problems.html