Yes, you’ve filed. But tax returns aren’t etched in stone, and businesses can correct mistakes and take advantage of opportunities retroactively by amending tax returns. Today, I’m going to tell you the basics: the most common reasons for amending, the timetables, and when not to file an amendment.
Am I encouraging business owners to go D.I.Y. and file amendments on a hunch? Of course not. But if you’re not a client of mine, you can use this information to check up and see if your accountant is proactive.
Here’s the basic information you need to know
Let’s take a look at the basics: reasons to file, business structure differences, time, and benefits.
Why would I need to amend a tax return?
Generally speaking, there are three situations in which you’ll need to amend your return:
- Missed deduction or credit
- Underreported income
- New financial information¹
Calculation errors are not a good reason to amend a tax return in most cases. The Internal Revenue Service (IRS) typically recognizes and corrects small mistakes on forms. The IRS will notify your business of the change and provide instructions if any further action is needed. Typically, it is not.
How you file depends on your business entity structure
Below is a list of entity structures and the associated forms.
- Sole proprietorship or single-member LLC — form1040X.
- Partnership or multi-member LLCs — form 1065.
- S-Corp — form 1120S.
- C-Corp — form 1120X.
Again, do not attempt to file an amendment alone. But definitely go do some digging on the IRS website. It’s up to you, in the end, to save your money from the government.
How much time do I have?
Tax returns may be amended for up to three years in the past. If you recently realized you missed out on some savings from 2021 or 2022, bring that to the attention of your accountant.
Are there any other benefits to amending a business tax return?
While fixing broader inaccuracies is often the first reason for amending tax returns, a proactive CPA will make it part of his or her strategic process to reduce tax liability for clients—analyzing new laws or regulatory shifts for changes that present tax savings opportunities.
Still, I highly recommend being aware of past returns and opportunities for savings. Some firms and accountants need a little push.
These are the top reasons to amend your tax return, expanded
#1: Missing deductions or credits
Tax deductions and credits are numerous and variable, i.e., there are a lot of them, and they change, which presents tax reduction opportunities. Small businesses rarely benefit from changes for a simple reason. Neither the owner nor the firm representing their interests is aware of the changes.
Eligibility requirements are complex. Variables include business structure, industry, location, and employer and employee demographics. And the variables change.
That’s why meeting with a CPA is a great way to find past tax credits and deductions you’re eligible for.
For example, the Employee Retention Tax Credit (ERTC) has been discontinued; but if you qualified for it in 2021, you’re still eligible for those funds. It’s worth up to $7,000 per quarter per employee, so definitely consider amending that year’s tax return if you can.²
#2: Underreported income
If your bookkeeper or accountant underreports income, you’ll end up with penalties with interest. Amend your tax return as soon as possible.³
#3: New Information
Maybe your small business received a payment and did not include it on its original tax return. Or maybe you received a new form (such as a 1099) after filing. New information often leads to amending tax returns.
Don’t hesitate to consult your tax professional if you discover new information, good or bad.
Here’s when not to amend a return
#1: Wait to amend if you’re expecting a larger refund
To ensure you receive the majority of your tax refund in a timely manner, it’s best to wait until you receive your original refund before filing an amendment. That way, you’ll have access to most of your refund upfront while waiting for the additional refund amount. You’ll delay the entire process by filing an amendment right away.
#2: Not every error needs an amended return
The IRS can be understanding—sometimes.
So forget about amending your return if you:
- forgot to attach a form; or
- made a math error
The IRS corrects minor mistakes, and they’ll notify you if any action needs to be taken.
Don’t try the IRS “Interactive” tool
The IRS’s “Interactive Tax Assistant” is a new feature that asks users a series of questions to determine if they need to file an amended return. It’s a great tool for individuals, but it’s not for businesses.
Sit tight after you submit your return
It can take time for the IRS to process your return, but that’s no cause for alarm. Amended returns take around three weeks to show up in the agency’s system. Be prepared to wait up to sixteen weeks for your return to be processed.⁴
You can check on the status of an amended return on the IRS’s website.
Click here to schedule a discovery call with me if you have new information, suspect there’s a problem with your return, or simply want to take a retroactive look at the last three years of returns. You might be surprised by what you find.
Jeremy A. Johnson, CPA
- If you must amend your return. Irs.gov. 2023. Available from: https://www.irs.gov/newsroom/if-you-must-amend-your-return
- Camberato J. What is the employee retention credit (ERC), and how does the program work?. Forbes. 2022. Available from: https://www.forbes.com/sites/forbesfinancecouncil/2022/06/21/what-is-the-employee-retention-credit-erc-and-how-does-the-program-work/?sh=1457cfd9fd2a
- Four common tax errors that can be costly for small businesses. Irs.gov. 2023. Available from: https://www.irs.gov/newsroom/four-common-tax-errors-that-can-be-costly-for-small-businesses
- Where’s My Amended Return?. Irs.gov. 2023. Available from: https://www.irs.gov/filing/wheres-my-amended-return