There’s nothing like the pressure of tax season to throw us off our games.

Even the most punctual and precise among us may find ourselves simply unable to meet the April 15 deadline, or discovering we made a mistake in what we reported to the IRS.  Excuses like “the dog ate my 1040” or “I suffer from spells of amnesia” just aren’t going to cut it, even if we could get a note from the vet or our physician.

So what is a taxpayer to do when his tax form is either late or wrong?

Let’s take the lesser of the two transgressions first:  being unable to file the return on time.  No excuses are necessary, just an extension Form 4868 filed by April 15, which automatically buys you six more months to get your tax return filed without incurring a late filing penalty.

However, here’s the catch.  With Form 4868, you must pay any additional taxes owed for the prior year, over and beyond what you have already paid via withholdings or estimates, or you will face an underpayment penalty. Pay the right amount, and from the IRS’s perspective there is no harm, no foul.  But from the back of the room comes a small voice, which likes to tell it like it is, whether to Emperors or the IRS:  “How the heck can you know what you owe if you haven’t done the return?!”

To which the only right answer is:  guess, and guess high.  You will be asked on the 4868 to report your total 2015 tax liability, as well as how much you have already paid.  If you are very certain you paid more than you owe, make the total liability the same as your payments, and then get cracking to file the return so you can get your refund.  Otherwise, err on the high side for the total liability, and send in a check for the difference between your payments and your estimated total liability.

Now for the other sin: filing an erroneous return.  Sometimes the error is due to a miscalculation; sometimes it is a result of information you received that is superseded by new information.  What you need to do depends on the materiality of the error:

  • Simple errors: If you discover after filing the return that you made a simple addition or subtraction error, or forgot to attach a supporting form, just sit tight.  The IRS routinely spots these errors and takes a “Don’t call us, we’ll call you” approach. Wait until you get the IRS notice of the error to make good.  Otherwise, if you initiate the reporting, you may find yourself in a situation not unlike trying to talk to someone on a cell phone with a really bad, delayed connection.  You speak, and the IRS speaks, without either of you first hearing what the other one has to say.  
  • Substantial errors: When your mistake involves incorrect and relatively large numbers, and those numbers are not in your favor, you definitely should amend, and the sooner the better. Here’s where you’ll need to file a 1040X.  And you’ll get no electronic mercy from the IRS:  the 1040X cannot be filed online but must be mailed.  So if you misreported your filing status, your income, your deductions, or your credits, and the correct information would result in you owing more taxes, file that 1040X ASAP to stop the accrual of any penalties or interest resulting from the mistake. 
  • Errors in your favor: What about a situation where “my bad” means “my good"? Sometimes omissions can result in a refund, and you might think this, too, is reason to hustle.  Not so fast.  If you use an accountant to file all your tax returns, weigh the costs of the accountant’s time to fill out the 1040X.  Tax returns are never as simple as they purport to be, and you may find you are paying every bit of the resulting 1040X refund, and more, back to the accountant. In which case, you may wish to let bygones be bygones, and feel good about lowering the national debt. 
  • Other considerations: Sometimes an amended return is in order even when no mistake has been made.  For example, there are tax provisions that allow certain current losses to be carried back to previous years to offset past taxable income.  There are also situations where new tax law is enacted, seeking to benefit certain types of taxpayers such as homeowners, hurricane victims or veterans, and the way for these groups to collect the benefits is by amending their returns. 

If the idea of filing a 1040X fills you with fear and loathing, take heart. When we do anything repeatedly, such as walking, talking, or paying taxes, we are all bound to trip up eventually. It happens to the best of us.  Just ask former Treasury Secretary Timothy Geithner, who amended his tax returns for six years running…