Archive for the ‘Refunds’ Category

Filing an Amended Tax Return

Originally published in the Cedar Street Times

May 2, 2014

It’s May!  The sun is shining and the grass is green.  There is plenty of daylight in the evenings and summer is just around the corner.  You even have your tax returns complete.  Things are looking good!  As you mosey out to the mailbox and pull out today’s haul, you see a letter with an unusually interesting stamp, one kind of like your dad used to collect…then it hits you, “Wait a minute, did I claim the deduction for donating Dad’s stamp collection to the museum!  I even spent $300 on the appraisal, and I completely forgot about it!  And my taxes are already done!”

Fortunately for the hypothetical you as well as everyone else, there is a cure-all remedy elixir called an amendment.

The Internal Revenue Service (IRS) provides form 1040X and the California Franchise Tax Board (FTB) provides form 540X to facilitate this process for individuals.  The ‘X’ comes from the fact that you must be eXtra crazy to want to do your taxes again.  Actually, I have no idea where the ‘X’ comes from, but it is probably rooted in something – just like 401(k) plans.  Many people don’t realize 401(k) is simply the Internal Revenue Code Section that lays down the rules for that particular type of retirement plan.  Somebody was not having a creative day when they came up with that one.  But I digress…

The IRS version and the FTB version of amendments follow a similar format with a column of the original amounts reported, a column for the net change, and a revised column.  They do not cover all lines in the tax returns, however, but selected key lines as well as subtotals for other things.   Any affected schedules and statements are re-prepared in full in the corrected manner and attached to the returns.  The returns must be paper filed, and if there are changes to amounts reported for tax withholdings, the physical copies of the forms showing the withholdings must be attached.

Simple math errors are generally corrected by the taxing authority computer systems, and a change letter is sent automatically, so you generally don’t have to file an amendment if for some reason you noticed an arithmetic error on the return.  With computer tax preparation so prevalent, it is rare to see this unless the return is hand-prepared.  As a side note of interest, every client hand-prepared return I have re-prepared in the past ten years, aside from something basic like a single person with a W-2 or a pension, has had preparation errors – a tribute to the complexity of our tax code today.

If you missed something large and underreported your taxable income significantly, it is to your benefit to amend as soon as possible as interest and penalties will continue to grow.  You could also be assessed a 20 percent accuracy related penalty.

The IRS generally gives you three years to file an amendment and the FTB gives you four years.  More specifically and to illustrate, if you filed your 2013 1040 return on or before April 15, 2014, you have until April 15, 2017 to file your 1040X amended tax return.  If you filed for an automatic extension until October 15, then you have until the earlier of 1) three years from the date you actually file the return or 2) three years from October 15.  If however, you are delinquent on paying the tax you owe, and you have an outstanding balance that carries on for a period of time, that time frame could be extended as you have at least two years (one for California) after the date you actually pay the tax to file an amendment.

After filing an amendment, don’t hold your breath waiting for a response, as it typically takes two or three months to process the returns.  If you are curious, however, you can check the status of your return at http://www.irs.gov.

I have worked with quite a number of people over the years where we have gone back to file amended tax returns to claim missed deductions from the past and obtain a refund.  If the amendment can yield a greater refund than the cost of preparing the amendment, it is certainly worth considering!

Prior articles are republished on my website at www.tlongcpa.com/blog.

IRS Circular 230 Notice: To the extent this article concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.

Advertisements

Where is My Refund?

Originally Published in the Pacific Grove Hometown Bulletin

April 20, 2011

 

So you filed your returns on time and you are now waiting for your refund to arrive – but when?  Hopefully you have taken advantage of modern technology by e-filing your tax returns and requesting direct deposit – not only does this ensure your information is communicated faster and more accurately to the taxing authorities, but it also puts money in your pocket in less time.

Federal

The IRS has an e-file refund cycle chart available online that will tell you the day your check will be deposited or mailed depending on when the return is electronically transmitted and accepted.  Generally, it will take one to two weeks for direct deposit or two to three weeks for a paper check.  If you mailed your returns, it could take up to six weeks before you hear the jingle in your pocket.  If you go to www.irs.gov and click on “Where’s My Refund,”( on the right-hand side of the page) you can enter in your social security number, filing status, and refund amount to determine the exact status of your refund.

California

California refunds are typically paid out within seven to 10 days if you e-filed, or eight weeks if filed by paper!  Like the IRS, the FTB has a similar online tool to check the status of your refund.  This tool is available at www.ftb.ca.gov/online/refund/index.asp.

What about same-day or next-day refunds?

You have probably heard radio or television ads advertising tax preparation services that can get you a refund almost immediately.  This is not what is really happening.  No tax preparer or discount chain has a special connection with the IRS or the FTB.  The preparer typically teams up with a bank to loan you the money in anticipation of your refund.  These are almost always high-interest and high-fee short-term loans and are rarely in your best interest.  The tax preparers and the banks funding your “refund” are the ones who usually benefit.

There has been a lot of scrutiny and lawsuits regarding these loans over the past several years.  One major chain in California settled a lawsuit in 2009 for nearly $5 million due to the deceptive and pricey structure of these products it was offering to taxpayers.    These refund anticipation loans are often likened to pay-day loans and generally should only be used as a last resort in an emergency.

The best way to avoid the need for one of these loans is to ensure you are e-filing with direct deposit and to do better planning during the year by adjusting your withholdings or estimates if there are changes to your tax situation.  If you are unsure how to handle this on your own, you may wish to consult with a tax professional.  The other option is to just be patient and wait for the refund to come for free!

Travis H. Long, CPA is located at 706-B Forest Avenue, Pacific Grove, CA.  Travis can be reached at 831-333-1041