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If you do your own taxes or work with a bad tax preparer, the IRS could come after you for money you still owe, plus interest — or you could be leaving money on the table without realizing it.
Fortunately, the IRS allows you to file an amended tax return to fix any mistakes or account for major life changes. Generally, you can file an amended return for up to three years after the original due date, or three years after the file date if you extended the due date. However, if you missed previous filing or payment deadlines, or are amending a previously amended return, additional restrictions may apply.
Five million people were expected to file amended tax returns for 2014, according to the IRS, and many of those returns will result in a refund. Here are five factors that could trigger or justify an amended return and, in many cases, lead to more money in your pocket:
- Change in status. This could mean you moved, got married or divorced, had a baby, or any number of things that you wouldn’t have accounted for the year before. For example, the Supreme Court decision to legalize same-sex marriage has unleashed a flurry of amended returns to reflect joint filing or married-filing-separately status, since the original returns were filed under different legal circumstances.
- General math errors. In its most recent report, the IRS reported more than 2.2 million math errors for 2013 individual tax returns, which represents about 1.5% of the approximately 147 million returns. The IRS usually will correct math or transposition errors during the initial processing of a filed tax return by comparing the return to supporting documents. However, it doesn’t hurt to check for errors, particularly on things that the IRS might not be able to see, such as receipts.
- Issues surrounding itemized deductions (Schedule A). Schedule A contains most of your itemized deductions, including charitable contributions, mortgage interest and miscellaneous deductions. If you recently bought or refinanced a house, or if you do a lot of charitable work, it may benefit you to take a look at your Schedule A to see whether you should amend your return.
- Unrealized business deductions (Schedule C). Have a side gig, such as consulting or project-based work? If you do, but you never filed a Schedule C, chances are you’ve missed some easy deductions. It’s worth taking a closer look.
- Errors related to capital gains and losses (Schedule D). A lot of people make mistakes when recording capital gains or losses on their tax return. A common mistake is listing the sale price for a security, but forgetting to note the basis (purchase price plus commission). This applies not only to securities such as stocks and mutual funds, but also to the sale of your principal residence. When calculating your home’s basis, don’t forget to factor in the cost of major improvements, systems and renovations — think roof replacement, air conditioners, or kitchen remodeling. Major projects (not repairs) will increase your basis, therefore lowering your taxable gain. Real estate commissions and closing costs lower your taxable gain as well.
This article isn’t meant to replace competent tax advice tailored to your specific situation, nor is it an all-inclusive list of potential errors in a tax return. If you’re not sure what to do, consult a fee-only financial planner or tax professional in your area.
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