Tax Return Reviews, 2nd Opinions, & Amending Taxes to Save You Money
When do tax return reviews come in handy? Picture this, you’ve just spent hours working on your tax return. It took awhile, but now it’s done and you’re ready to confidently file your paperwork with the IRS. You were meticulous in your work and read all the necessary instructions, so you know everything on your tax returns is correct. Or not?
Maybe you didn’t do your taxes yourself. Perhaps you visited a pop-up tax preparation service, the kind that appear every year at tax time. You’ll be fine. After all, you’re fairly certain that the kid with the purple hair at the mall is a professional, right?
If you’re starting to feel a little nervous, consider hiring a CPA to do a tax return review for you. Doing so provides peace of mind and many other benefits that make the cost of an accountant well worth every penny.
Benefits of a Tax Return Review or Second Opinion
Perhaps the best reason to have a professional take a second look at taxes is that it can lower your stress. Once you’ve handed off your return to a professional reviewer, you can release the breath you didn’t know you were holding. Mistakes are much less common on professionally repaired returns. You can trust a CPA to catch any errors you make so you can fix them before you file. Catching mistakes now may save you from a tax audit later.
Even if you did your taxes perfectly with the information you had available, you may have missed something. Tax laws change all the time, and these changes are easy to miss. Your CPA, however, knows both new tax laws and many of the more obscure rules. They can use this knowledge to help you make sure your tax bill is as low as is legally possible. Of course, a CPA can also help you catch a mistake that shorts the IRS so you don’t have to pay fees and penalties later.
Having a pro look at this year’s taxes can also help you with both past and future years. Sometimes after taking a second look at taxes, a CPA can suggest different ways of doing things that can help you with future tax filings. A CPA may, for example, suggest a new way to keep and organize your small business receipts or help you take the most advantage of the tax break offered by your IRA or other retirement plans.
Many accountants offer a service known as the “look back.” During a look back, a CPA will review your tax returns for the last three years. If they find any errors or money left on the table, they’ll let you know so you can file an amended tax return. A look-back will also ensure that you’re not missing out on any tax breaks that expired and then came back. This happens when Congress passes a tax break of some kind with an expiration date. The law is often allowed to expire but then later reinstated. If it is, you may be able to file an amended tax return and take advantage of a tax break that you can apply retroactively.
Tax Return Amendment Rules
It’s important to know when to file an amended return, but it’s also important to know when not to. If you filed your tax return for this year but noticed a mistake right after you did, you don’t need to file an amended tax return. Instead, simply file a second return. Your second return will supersede your first.
Here’s an example. Let’s say you filed your 2020 tax return on April 1, 2021. The day after you mail it, a nagging feeling of doubt keeps bothering you so you look at your return again and find a mistake. Fortunately, your taxes aren’t due until May 17, 2021. Because you found your mistake before the 2020 tax filing is due, you can simply file a second 2020 tax return rather than filing an amendment.
You can also skip the amendment if the mistake you made was an arithmetic error or if you transposed a number. The IRS generally catches these minor mistakes and corrects them for you. You’re good if you forgot to attach a form or schedule as well. If the IRS decides they need the missing paperwork, they will reach out to you and ask you to provide it. Unless and until they do, a missing schedule or worksheet isn’t something to worry about.
How and When You Need a Second Look at Taxes or an Amendment
Under almost every circumstance except those listed above, it’s best to file an amended tax return. Don’t know how to amend a tax return? No worries — the process is easy. You’ll simply get a Form 1040X from the IRS and fill it out or file an amended return with whatever tax preparation software you used to file. The amended document will show what you filed on your initial return and what you’re filing now.
As we’ve said before, there are exceptions to every IRS rule. Generally, however, the amended tax return deadline is three years from the date you file your return or two years after the date you paid any taxes due, whichever is later. The amended tax return deadline may be later if you’re dealing with bad debts, foreign tax credits and other special circumstances.
If filing an amendment results in you owing more tax, be prepared to pay it right away. The IRS charges late fees and interest on money they receive late, so an amended filing can leave you owing taxes and fees. The quicker you can pay, the lower the interest will be.
Missed a Tax Deduction
Of course, sometimes correcting mistakes on your taxes lands in your favor. This occurs if you missed a tax deduction or credit. It may also occur if your CPA finds any of the retroactively applied credits we talked about earlier. A natural disaster can also qualify you to take a loss on last year’s return, in certain circumstances.
Received a Late W2 or 1099
Sometimes the mistake that necessitates filing an amended return isn’t yours. If you receive a W-2 late or a corrected 1099 after you file your taxes, you may need to change what you reported to the IRS through an amended tax filing.
If a second look at your taxes results in the need to file an amendment, take a deep breath and move forward with confidence. Tax mistakes happen all the time, so filing an amendment won’t make you any more likely to face a tax audit. The IRS pulls returns to audit at random, so you need not worry about how to amend a tax return without causing trouble for yourself.
State Taxes Can Be Affected By Federal Amendments
Remember that your state taxes may necessitate amending your federal taxes if you don’t plan ahead. Many states, for instance, require you to take a standard deduction if you did so on your federal taxes. If it turns out that itemizing on your state taxes results in a bigger refund for you, you may wish to change your federal return and itemize there also.
This is a funky concept, so let’s clarify with an example. Let’s say you were going to itemize on your federal taxes. The standard deduction for a single taxpayer is $12.400 in 2020. When you calculated your itemized deductions, you realized you only had $12,000 worth. You decide to just use the standard deduction instead of itemizing since it helps you more.
Now you move on to your state taxes. You still have $12,000 worth of itemized deductions, and itemizing will lower your state tax liability much better than taking your state’s standard deduction. Unfortunately, your state won’t allow you to itemize since you took the standard deduction on your federal taxes.
If switching to the itemized deduction on your federal return will result in you paying an extra $200 in federal tax but save you $1,000 on your state taxes, it’s worth changing your federal tax return. (If paying an extra $200 on your federal return only saves you $100 on your state tax, then it’s not worth changing your federal return.)
The trick is to look at your tax picture overall, which is something a professional tax preparation service can do for you. They can juggle the numbers for you and play out all the possible scenarios to find the one that works best for you.
When To Hire a Pro?
All this juggling is time-consuming, and it’s something that the accounting professionals at Picnic Tax would be happy to do for you. We’re also available to take a second look at your taxes and perform a three-year look back if you wish to find any money you may have missed out on. Hopefully, any errors we do find will be in your favor.
But we’re also here to help you fix any mistakes we do find and advise you on how best to proceed with the IRS if you made an error that shorted your tax bill. Contact us today and enjoy stress-free taxes and help you can trust.