If you’re owed a tax refund related to a tax return filed for a previous year, the IRS isn’t going to automatically send it to you. It’s up to you to file for it. This means submitting an amended return. Recent legislation has provided opportunities for tax refunds that you may be eligible for…if you file an amended return. Determine whether to do so and how to go about it.
Why file an amended tax return now?
The Tax Certainty and Disaster Tax Relief Act of 2019, which was part of the Further Consolidated Appropriations Act, 2020, contains a number of “extenders” of tax provisions that expired at the end of 2017. They have been extended for 2018, 2019, and 2020. As a result, if your business is entitled to any of the following extended provisions on a 2018 return that has already been filed, consider filing an amended return so that you can receive a tax refund:
- 3-year recovery period for depreciation for certain racehorses
- 7-year recovery period for depreciation of motorsports entertainment complexes
- Expensing of certain film, TV, and live theatrical productions
- Deduction for energy-efficient commercial buildings
- Tax credits for:
- Indian employment (this is the name of the credit in the Tax Code)
- Biodiesel and renewable biodiesel
- Qualified fuel cell motor vehicle
- 2-wheel plug-in electric drive vehicle
- New markets
- Various tax incentives for empowerment zones
Of course, these extenders aren’t the only reason for filing an amended return. New discoveries, such as the omission of a significant deduction or other favorable tax position, could warrant the filing of an amended return. Sometimes, these opportunities become apparent when preparing the current year’s return (the return for 2019), so review them with your tax preparer during this tax season. Whether there are refund opportunities and if you should file an amended return is something to consider.
How to file
For individuals—owners of pass-through entities—an amended return (Form 1040X) must be filed on paper. As yet, it cannot be filed electronically. This means it takes longer for the IRS to process it…and longer to receive a refund.
The form you file to amend a business income tax return depends on your entity type:
- Sole proprietorships (including independent contractors): File Form 1040X to revise entries on Schedule C and on other places on the original return.
- Partnerships: Form 1065 with the “amended return” checkbox G(5) selected. Generally, the amended return must be filed electronically, although a waiver can be obtained. If a paper return is filed, use Form 1065X. Be sure to issue revised Schedules K-1 to partners so they can file their own amended returns (check the “amended box” on the K-1).
- S corporations: Form 1120-S with the “amended return” checkbox H(4) selected. Be sure to issue revised Schedules K-1 to shareholders so they can file their own amended returns (check the “amended box” on the K-1).
- C corporations: Form 1120X.
Filing an amended return for federal income tax purposes may not be the end of the story. You may want or need to file an amended state income tax return. Check with your state tax/finance/revenue department or agency.
If you use a paid preparer, determine whether the amount of the refund is sufficient to justify paying professional fees. You have time to decide. As an individual you can obtain a refund as long as you submit the amended return within 3 years after the date the original return was filed or 2 years after the date the tax was paid. Watch for the deadlines applicable to amending business returns. Of course, the sooner you submit the claim the faster you’ll receive the refund.