15 Sep 23

How to Correct Past Tax Mistakes Before an IRS Investigation Starts

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Last Updated on: 24th September 2023, 12:37 am

How to Correct Past Tax Mistakes Before an IRS Investigation Starts

Making mistakes on your taxes is super common, so don’t freak out! The good news is that there are options for fixing errors, even if the IRS hasn’t contacted you yet. This article will walk through how to amend past returns, respond to IRS notices, and get ahead of potential audits.

If you catch a mistake before filing

If you notice an error before submitting your return, you have a couple options:

  • If the filing deadline hasn’t passed, submit a new, corrected return. The IRS will use the latest version you send.
  • If the deadline has passed, you’ll need to file an amended return using Form 1040-X. More details on amending below!

If you get an IRS notice

IRS notices come in different flavors, so your response depends on the specifics:

  • Notices about math errors or incorrect info can be fixed by amending your return. See the amending section below.
  • Notices about an audit mean the IRS is double-checking your numbers. Follow the notice instructions closely!
  • Notices about changes the IRS made likely need an audit reconsideration request. The Taxpayer Advocate Service has guidance.

If you never filed a return you should have

Yikes, this one can get messy. But the sooner you take action, the better. Steps include:

  • Filing any unfiled returns ASAP, even if late
  • Paying any taxes due, plus interest and penalties
  • Asking for “first time penalty abatement” to remove some penalties

The IRS Backfiling page has more details on getting square with unfiled returns.

Amending a tax return

Okay, this is the big one! Amending a return is how you fix errors after filing. Here’s a step-by-step guide:

  1. Get a copy of the original return, plus docs that relate to the change (W-2s, 1099s, etc).
  2. Print out and fill in IRS Form 1040X – it walks through the amendment.
  3. Double check the form instructions to catch any special cases.
  4. Mail the 1040X form, plus new docs, to the IRS using the address in the instructions.
  5. The IRS will review and send a notice if they adjust your return or owe a refund.
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Some tips for amending:

  • You typically have 3 years to amend after the filing date.
  • Both paper and e-filed returns can be amended.
  • You can file multiple amendments, but each one replaces the last.
  • Amend separately for each tax year – don’t group years together.

When NOT to amend a return

Amending is not always the right choice. Some cases where you may want to let sleeping dogs lie:

  • Small dollar errors – if the change is less than $100, often not worth amending.
  • Errors in your favor – no need to flag extra income not reported.
  • Changing filing status – usually requires full return recomputation.

Of course, you want to follow the law. But in these cases, amending may create extra hassle compared to the scale of the error. Use your judgment!

Can you amend after getting audited?

Amending gets trickier after an IRS audit, but it is possible in some cases:

  • If the audit uncovered errors, you can amend to correct them.
  • If you disagree with audit changes, you may need to formally appeal.
  • If new info surfaces, you can amend even after audit closure.

Tread carefully though, as amendments after audit often trigger scrutiny. Only amend with good cause.

Strategies to avoid amendments

No one likes amending returns, so here are some tips to avoid needing amendments:

  • Start return prep early so you have time to double check.
  • Gather all your tax documents in one place.
  • Use tax software or an accountant to catch errors.
  • Review your return carefully before e-filing.
  • Save a copy of your return and confirm IRS acceptance.

An ounce of prevention is worth a pound of amendments! But if you do need to amend, rest assured it’s very common and fixable. Just follow the steps for your situation. And for complex cases, don’t hesitate to get help from a tax pro.