Amended tax returns may be filed for several reasons, a few of which include:

• Recalculating Tax Credits
• Claiming Tax Credits Previously Not Taken

You Should NOT file an amended tax return simply to correct math errors.  The IRS has computer programs which will make the corrections for you.

The following are a few tips to help with filing an amended federal tax return:

• The for to file an Amended U.S. Individual Income Tax Return is Form 1040X.  This form is also used to amend 1040, 1040A and 1040EZ returns, and for returns that were filed electronically (e-filed).
• You should file an amended return to change any of the following: filing status, dependents, total income, deductions and/or credits.
• Enter the year of the tax return being amended at the top of Form 1040X.  You must file Form 1040X within three (3) years of the date you filed the original tax return or within two (2) years of the date the tax was paid, whichever is later.
• When amending more than one (1) year fill out a 1040X for each year being amended and mail them to the IRS in separate envelopes.
• Attach all schedules and forms that were filed with the tax return in the year being amended.
• If you are filing to claim an additional refund, wait until you have received your original refund before filing Form 1040X. You may cash that check while waiting for any additional refund.
• If you are filing the 1040X because you owe additional tax money to the IRS be sure to include the tax payment with the 1040X or send in the payment as soon as possible to limit interest and penalty charges. Interest is charged on any tax not paid by the due date of the original return, even if you file an extension.

About Form 1040X to Amend a Tax Return

IRS form 1040X is a process, as most things are when dealing with the federal government.  Remember that the IRS uses a fine tooth comb on each amended return, especially if you are applying for a tax refund.  Be sure to complete each step and line carefully and make sure all math is correct.  If you have had any past problems with the IRS or any pending issues I do not recommend filing a 1040X unless absolutely necessary.

As mentioned above, use IRS form 1040X to file an amended return if you used returns 1040, 1040A, 1040EZ, or e-filed.  Be sure you are within the correct time limit for filing (three (3) years of the date you filed the original tax return or within two (2) years of the date the tax was paid, whichever is later) and that all schedules and forms that were filed with the tax return in the year being amended are attached.

If payment is owed include this with the 1040X, if possible, to avoid additional penalties and interest assessments.

How to Prepare Form 1040X to Amend a Tax Return

First gather the original tax documents for the tax year which you are amending.  Familiarize yourself with the Form 1040X before filing out any of the information.

Before completing the document make sure you understand the form and that you have all information needed to complete it.  You may need to read over it twice.  If you filed your tax return using an internet-based program such as Turbo Tax then you should be able to use their service to file form 1040X at no additional cost.

Layout of IRS form 1040X:

Column A – Reports various items from your original tax return.

Column B – Reports the difference between the old (column A) and the new (column B).

Column C – Reports the same items from your revised 1040.

Should you be reporting an increase in earnings, the figure in Column B will be a positive number.  If you are reporting a decrease in earnings, the figure in Column B will be negative.  Please be sure to have documentation to back up any claims in a decrease in salary, and be sure to check and double check all math before sending.

Form 1040X is Part II –

This is the portion of the form where the changes made to the 1040 are reported, along with the reasons for the changes.  It is important to be clear and concise (short and to the point) in the explanation.

Links provided by the IRS for form 1040X:

• Form 1040X, Amended U.S. Individual Income Tax Return (PDF 110K)
• Form 1040X Instructions (PDF 45K)
• Tax Topic 308 — Amended Returns

1. You know just enough to be dangerous,
2. You know more than you don’t know, or
3. You’re a tax genius.

Whatever category you find yourself in one important decision needs to be made: Can you DIY??  Do you know enough to file your own taxes?  How complicated are your taxes going to be?  If you have only one 1099 or W2 and few to no deductions to take, chances are you can do you own taxes.  If one 1099 or one W2 with few to no deductions does not describe you then keep reading.

1. How Much Time Do You Have?

The IRS estimates that the average taxpayer took over 24 hours to do his or her tax return in 2008, and 52+ hours to complete a Schedule C for business and Schedule E for rental properties.  Filing taxes online through the IRS, or through a tax program like Turbo Tax, can save a lot of time.  But it is important to remember to prioritize and organize all necessary materials, such as check stubs, receipts, interest payments, etc.

Should you file online?

The simplest of tax forms to file online are those with no or few deductions.  Also, having all documentation readily available, organized and calculated will help save some time.

2. If You Need Help You Can Afford It?

For basic tax returns, consulting a CPA to assist will cost between $50 and $100 and can go as high as a couple of thousand dollars for more complicated returns.  If you want to know approximately how much it will cost to file your tax returns using a CPA do not be afraid to ask before agreeing to their services.  There is nothing worst that being told you owe money and then being hit with a larger than expected invoice.

According to the IRS, the average CPA filing fee for an itemized tax return is over than $200.  One thing to consider: Fees paid for tax preparation may be deductible on your next year’s itemized return, since tax preparation fees qualify as miscellaneous deductions.  In order to itemize your deductions the sum of your deductions must be more than 2% of your adjusted gross income.

3. Do You Have the Patience To Deal With Complicated Tax Code?

Congress loves to change the tax law.  Many changes are relevant, and many others are not.  Most often changes are made to the tax code in order to close a loop hole.  Changes have been made to the tax code every year but 3 years over the past 44 years!  It is easy to see how an easy thing can quickly become complex and overwhelming.

Over 60% of Americans choose to consult a CPA to help them file their taxes, due to the complexity.  That equates to about 80 million out of the 134 million individual tax returns filed each year.  A growing percentage of people are choosing to file their taxes electronically – more than 72 million in 2006. Much of this growth has come from professionals filing their client’s returns electronically.

Many times filing your own taxes, using a program such as Turbo Tax, simply gives the user the convenience of not having to visit the accountant’s office.  It does not cut down on the preparation time.  If your taxes are complicated, ie: lots of deductions, you are going to want to do the calculations yourself anyway, rather than leaving that for the accountant, as that will significantly add to the filing fees.  So, sometimes it just makes sense to sit down with a tax accountant, especially if there has been a major change in your life.

Changes in your like that makes it ideal to use a tax accountant to prepare your taxes:

• If you have recently received an inheritance due to the death of a loved one.
• If you are recently divorced.
• If you are recently married or have had a child.
• If you have started a home-based business or LLC.
• If you’ve cashed in an IRA.
• If you have recently retired or lost a lot of money in the stock market or an investment.

Are You Paying For Advice Or Typing Skills?

There are four basic tax preparer categories:

1. Storefront Agents like H&R Block or Liberty,
2. Certified Public Accountants (CPA),
3. Enrolled Agents and
4. Lawyers/Attorneys.

When selecting a tax professional try to find one who does more than simply insert your financial information into a form.  Find someone who is up-to-date on current tax codes and make suggestions for deductions and helping you save money.  Make sure your tax preparer has your best interest in mind, helping you get back or keep as much money as possible, while not doing anything risky that will help you to stay our of the IRS radar.

Here are three (3) tips for selecting a professional to help you prepare and file your taxes:

1. Look For a Tax Preparer Who Asks A Lot Of Questions – The way to get your money’s worth is for the tax preparer to understand what it is that you do and then looks for every deduction possible.  Be sure to arrive for your appointment overly prepared.
2. Look For a Tax Preparer Who Is Willing To Educate - Ask questions yourself and see how the tax preparer responds.  Are they eager and        willing to answer questions?  If not, perhaps you should look elsewhere the next time you file.  A good tax preparer will educate you about  what deductions are allowable as well as how to structure your activities in the future to minimize the amount of taxes you owe.
3. Look For a Tax Preparer Who Will Show You How To Save Money in The Future – A tax attorney is going to cost more to prepare your taxes than a CPA or storefront tax preparer.  However, if your taxes are complicated, and there is a lot of money at stake, a tax accountant might be the perfect fit.  The direction they provide for this year and for the future should help offset the cost of their services.

Visit a Professional For a “Checkup” From Time To Time

If you choose to file your own taxes using a program such as Turbo Tax, that is great!  Just be sure to visit a licensed professional at least every 3-5 years to make sure everything is on the up and up.  It is always a good idea to make sure you are following all tax filing standards and good practices, as we all know how much things may change from year to year.

To help you make the decision of whether to file your own taxes using a DIY program like Turbo Tax or to use a professional tax accountant then take this Tax IQ Test.