Does the IRS Owe You Money?

With-131-Million-Returns-Filed-Millions-of-Amended-Returns-Expected">IRS, 5 million people were expected to file amended tax returns for 2014, out of 131 million original filings. For 2015, the IRS expects over 150 million individual returns, which means even more amended returns can be expected.

Many amended returns actually result in a refund that would have been awarded if the original return had been filed correctly. If you prepare your own taxes, changed accountants, or had a major life change (such as change in marital status, dependents, or house move), how can you really be sure that you’re not leaving money on the table? Conversely, you could be waiting for the IRS to find your mistakes and say that you owe more than your tax return indicated. If this is the situation, you may not have enough liquidity to address your ‘sudden’ tax liability from a return you filed several years ago.

The general rule is that you are able to file an amended return for up to 3 years after the original due date (or the file date if the due date was extended). However, if you missed previous filing or payment deadlines, or are amending a previously amended return, there are additional restrictions that may apply.

If you think you may want to amend a return, below are five places to start:

  1. Change in status. This can be a move, getting married or divorced, having a baby, or any number of things that you wouldn’t have accounted for the year before. For example, in light of the Supreme Court decision to legalize same-sex marriages has unleashed a flurry of amended returns to reflect joint filing or married filing separately status.
  1. Math Errors. In its most recent report, the IRS reported over 2.2 million math errors for 2013 individual tax returns. This is approximately 1.5% of the approximately 147 million returns filed for 2013. 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.
  1. Schedule A-Itemized Deductions. Schedule A contains most of your itemized deductions, including charitable contributions, mortgage interest, real estate taxes and miscellaneous deductions. If you recently bought or refinanced a house, or 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. If you forgot a contribution, or noticed that you missed information on your return this is an area worth looking at. A common missed deduction is from your end of year mortgage statement (also known as a Form 1098), where people may have deducted mortgage interest, but forgot to include such things as real estate taxes paid, interest from a second mortgage, or other related costs.
  1. Schedule D-Capital Gains & Losses. Although tax harvesting seems to be a catch phrase during the end of year, there are a lot of people who make mistakes when recording their capital gains on their tax return. For example, a common mistake is listing the sale price for a security, but forgetting to note the basis (purchase price + commission). Not only does this apply to securities such as stocks & mutual funds, but it applies to the sale of your principal residence. When calculating your home’s basis, don’t forget to add the cost of major improvements, systems & renovations. Think roof replacement, air conditioners, or kitchen remodeling. Major projects (not repairs) will increase your basis, therefore lowering your taxable gain. Also, real estate commissions & closing costs should be considered, as they will lower your taxable gain as well. Many military families rent out their homes when they PCS, so depreciation is also something to consider when you sell that home.  I cannot recommend highly enough that you have your taxes professionally prepared in the year that you sell any rental property (before, actually). Furthermore, if you are considering the sale of your home/rental property, you should sit down with a fee-only financial planner who specializes in tax planning to make sure you’re taking everything into account.
  1. Schedule C-Profit or Loss from Business. Got a side gig, like some consulting or project-based work? If you do, but you never filed a Schedule C, you should look a little further to see what you may be able to deduct. You’re also responsible for paying both sides of the self-employment tax (1/2 of which is tax-deductible). If you did your own taxes and filed your own Schedule C, you might want to sit down with an enrolled agent or CPA to make sure you did it correctly.

This article isn’t meant to replace competent tax advice that is tailored to your specific situation, and it definitely is not an all-inclusive list of mistakes that could be in a tax return. However, you should be aware that doing your own taxes or sticking with a bad tax preparer could have you leaving money on the table, or worse, waiting for the IRS to find your mistakes and come after you for the difference (plus interest). If you’re not sure what to do, you should consult with a fee-only financial planner or tax professional that you can trust.

As always, this blog serves to answer your questions and address concerns.  If you like this blog, please forward it on to other people who may benefit.  If you have issues or concerns, or if you have a question you’d like me to answer, please feel free to contact me.  You can reach me through my website, or via email.  In the meanwhile, take charge of your life!

 


About the author

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Forrest Baumhover

Forrest Baumhover joined Lawrence Financial Planning in 2018 after a rewarding 24-year Navy career. He holds a B.S. in English from the United States Naval Academy and an M.B.A from Old Dominion University. Forrest has been a CFP® professional since 2015. He is also enrolled before the IRS as a tax practitioner.

As a veteran and a financial planner, Forrest understands the difficulties of being financially prepared for the unexpected. His personal experience in helping sailors resolve their own financial challenges inspired him to become a financial planner.

Forrest has been quoted in USA Today, Forbes.com, Christian Science Monitor, Business Insider, and other industry publications.

Originally a native of Dade City, Florida, Forrest has lived in Tampa since 2014. In his spare time, he volunteers as a transportation specialist, transporting his three children from activity to activity.

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