What Happens if I Made a Mistake On My Taxes?
If you discover you’ve made a mistake on your tax return (or the IRS has discovered a mistake), the first thing to do is to stay calm. There’s no need to panic. There are a lot of different ways to fix the situation, and if you owe additional tax, the IRS has many different programs that can help if you can't afford to pay in full.
So, what happens if you file your taxes wrong? If you discover the error, you can file an amended return. If the IRS discovers the error, the agency will send you a notice that explains the issue and any changes made to your return.
Wondering what to expect? This post outlines how the IRS finds errors, what to do if there is an error on your return, and what to expect if the IRS discovers an error.
What to Do If You Find a Mistake on Your Tax Return
If you spot an error in your tax return and haven’t submitted it yet, you should go back and fix it before you file. If you realize there was an error after you filed, you should amend your return. However, the IRS will often adjust your return for you, so depending on the nature of the error, you may just want to wait and see if the IRS contacts you.
For example, imagine that you file a Schedule C and notice that you typed in your revenue number incorrectly. You noted $10,000 of revenue but you actually had $100,000. It's easy to miss a zero when you're typing, but this is a significant error, and you should amend your tax return as soon as possible.
In contrast, say that you find a 1099-INT from your bank that shows $100 in interest, and you realize that you forgot to give that form to your tax preparer. This is a much smaller mistake, and the IRS will also receive a copy of the 1099-INT from the bank. In this case, you may just want to wait and see if the agency updates your return for you.
How to Amend Your Tax Return If You Find a Mistake
If you catch the error on your return, you can file an amended return. You only have three years from the original due date of the return (plus extensions) to amend a return to claim a refund. But if you're not claiming a refund, you can amend it at any time.
To file an amended return, you must fill out Form 1040-X and include a copy of your originally filed return. If you make changes before the filing deadline, you can file a superseded return that replaces the originally filed one.
For instance, if you file your individual income tax return on March 1 and you notice a mistake on March 30, you can file a superseded return because the April 15 filing deadline has not passed. If you don't find the mistake until after April 15, you will need to amend your return.
Amended returns can either be filed electronically or by paper. Generally, it takes the IRS approximately 12-16 weeks to process an amended return filed electronically, and it may take over a year for the IRS to process an amended return filed on paper.
Tracking the Status of Your Amended Return
To monitor the status of your return, you can create an account on IRS.gov. Once the amended return has been processed, your account will show the updated balance. You can also call the IRS to check on the status of your return, but calling the IRS can require a lot of waiting on hold.
If you owe taxes with your amended return, you should send payment with the return if filing on paper. If you filed electronically, you can mail in a payment with a voucher or make an electronic payment through the IRS’s website. If you choose to pay electronically, make sure that the payment is noted as an amended tax return payment, otherwise, the IRS may refund the additional payment before they process the return.
How Does the IRS Catch Mistakes on Tax Returns?
The IRS uses an automated computer system called the Automated Underreporter (AUR) to match up third-party tax records submitted with the numbers reported on your return. If there is a mismatch, you’ll receive a letter from the IRS outlining the discrepancy and requesting a response.
For example, if your employer reported $100,000 of earnings and you only reported $50,000, the IRS will spot the discrepancy, adjust your return, and send you a notice. Depending on the changes made, the IRS may send you notice CP11, CP12, LT-4800, or a similar type of notice.
The IRS also catches errors during audits. Audits differ from the AUR in that there is an agent assigned to review your tax return and ask questions about the figures provided. During the audit, the agent will ask for supporting documentation for your return and will review your response.
What Happens When the IRS Catches an Error on Your Return?
If the IRS's computer systems spot errors, it will automatically send you a notice. In some cases, the system may flag your return to be reviewed by a human employee. Here are some of the notices you may receive when there is an error on your return.
- CP2000 Notice: The IRS has discovered unreported income on your tax return.
- CP11 Notice: The IRS has found a math error on your return.
- CP22A: The IRS is confirming the changes that you made to your tax return.
You should never ignore correspondence from the IRS. Most IRS notices include a proposed balance due or refund amount. They also include instructions and deadlines for disputing the changes. Remember that the IRS can make mistakes, and if you think the changes are incorrect, you need to respond before the proposed changes become a tax assessment.
If you agree with the changes, you can send a payment to the IRS. If you can't afford to pay the bill in full, you should contact the IRS to talk about setting up a payment plan or making other arrangements for your tax debt.
What Happens if You Don’t Respond to an IRS Notice?
If you don't respond to IRS notices, the tax bill will become final, and then it becomes much harder to dispute. Additionally, you will incur penalties and interest on your account, and you may even face legal consequences.
Penalties vary depending on the type and severity of the error, but some common penalties include:
- Failure to pay penalty: If you fail to pay your taxes by the due date, you may face a penalty of 0.5% per month on unpaid taxes, up to a maximum of 25%. This penalty can increase to 1% per month in some situations.
- Accuracy-related penalty: If the IRS determines that you made a substantial understatement of tax or negligently or recklessly disregarded tax rules, you may face an accuracy-related penalty of 20% of the underpayment.
- Fraud penalties: In cases of tax evasion or fraud, the penalty is 75% of the unpaid tax.
How to Avoid Mistakes on Your Tax Return
To reduce the chance of mistakes, keep your tax documents well organized, and ensure you give everything to your preparer. If you do your own taxes, double-check that you have all the necessary documents before you start your return.
Before filing your return, go over it carefully. Tax season can be hectic for everyone, but you should review your return before you file.
Frequently Asked Questions
What happens if your file your taxes wrong?
If you notice the error, you can file an amended return. If the IRS catches an error, they will send you a letter.
Can I refile if I made a mistake?
Yes. If you find an error (whether it increases or decreases your taxes), you can file an amended return. If you catch the error before the due date, you can file a superseded return. You only have three years from the due date to claim a refund.
What if the IRS made a mistake on my return?
If the IRS sends you a notice with incorrect calculations or information, you need to respond by the deadline on the notice. You have the right to dispute or appeal IRS mistakes, but you must meet strict deadlines.
What if I committed a tax crime?
Making a mistake is not the same as committing a tax crime. If you purposefully committed a tax related offense, you should not follow the guidance on this page. Rather, you should consult with a tax attorney to see if the IRS Criminal Investigation Voluntary Disclosure Practice is right for you. This program allows people to report offshore foreign assets, crypto, and other unreported income not including illegal-source income.
Get Help With Tax Return Mistakes
Did you make a mistake on your return? Want to get help? Then, use TaxCure to find a tax pro today. Using our search feature, you can look for local tax pros in your area, and you can narrow down your results based on the type of issue you are having.