Realizing you’ve made a mistake on your business tax return is a stressful situation. Fortunately, businesses can amend their tax returns within three years of the original filing date. This can help your company get ahead of potential tax problems, resolving issues long before they attract audits or fines from the IRS.
That said, not all situations require you to file an amendment. If you realize you’ve made an error or omitted pertinent information from your tax return, the best way to correct the error will depend on the nature of the mistake.
When Should You File an Amended Business Tax Return?
If the errors on your tax return alter your tax liability or otherwise misrepresent your company’s tax position, you’ll likely need to file an amendment. Here are some common instances where you need to file an amended business tax return:
You Filed the Wrong Form
A common error is filing the wrong form for your business. For instance, if your business is incorporated and you end up filing Form 1065, then you’ve incorrectly used a form meant for partnerships. You will have to send your adjusted return with the correct form for your business structure.
You Underreported Business Income
As a business owner, you may realize that you missed an income statement while calculating your annual revenue, or you might reconcile your books and discover that you forgot to move some paid invoices from your accounts receivable to cash. In both cases, you have misinterpreted the business income to the IRS, and this may lead to a penalty. Amending your tax return is the best option to maintain compliance.
You Received New Information After Filing
In some cases, you may receive relevant information after filing your taxes. For example, dividends from your corporate shares or side income from a partnership could raise your tax liability for the year after you’ve already filed. In such a situation, filing an amendment will enable you to correct this mistake.
You Failed to Take Advantage of Tax Deductions
You may realize after filing your taxes that you did not take advantage of all the tax deductions or credits available to you. Amending your tax return will ensure that your business can benefit from every tax break it qualifies for.
You Claimed Deductions or Credits You Shouldn’t Have
You may have thought you qualified for a specific tax credit or deduction, only to later realize you were mistaken. In this situation, it’s crucial to amend your tax return.
Some tax deductions always stay the same over the years, for instance, insurance for work vehicles, flat-rate utilities like internet usage, and home office square footage. However, you can expect your tax deductions to reduce if you move to a new office space or reduce your insurance premiums, for example. If you attempt to claim an incorrect tax credit or claim more deductions than you are eligible for, it may lead to an audit. You can reduce your odds of facing IRS penalties by amending your tax return to correct any errors.
When You Do Not Need to File an Amendment
You do not have to amend your business tax return if you have the following mistakes:
If you made a math error on your return, you shouldn’t panic. Whether you subtracted expenses from your revenue and forgot to carry one on the return, you do not need to amend the math. The IRS will detect mathematical errors and will fix the mistake, or they will request clarification. In either case, you typically will not be penalized because of mathematical errors.
You Failed to Attach Tax Forms
In some cases, you may realize a little too late that you forgot to file an IRS Form 1099-MISC for your contract workers. You should not panic or try amending this business tax return mistake. The IRS will spot this discrepancy on your tax return, and they will contact your business to get this form. When you forget to submit some parts of your tax return, filing an amendment will create more paperwork for the IRS. Just wait until they contact you so that you can send in the forms you forgot.
You Received a Message from the IRS
If you’ve already received a formal inquiry or audit notice from the IRS, you shouldn’t amend the relevant tax return. In this case, the IRS will expect a response to their inquiry rather than an amendment, and seeking to update your existing return could cause confusion.
Whether or not you should file a business tax return depends on multiple factors, including the nature of the error and whether the IRS has already sent you a notice regarding the mistake. If you do need to amend your business tax return, the process will vary based on your business’ entity type. When navigating the various forms and mailing requirements, it can be helpful to have the guidance of an experienced tax professional. If you have questions about potential errors on your tax return, don’t hesitate to reach out to a trusted tax accounting team.