You find a 1099-MISC that reports miscellaneous income, such as that received for independent contract work. It turns out that the company that hired you to do German translation work last year didn't withhold any federal income tax.
Uh-oh. Das ist nicht gut. You have not reported all your income for the year. If you file a 1040X to amend your return, you will owe more tax. So why should you report the income? After all, will the IRS ever find out you didn't report this income?
It's possible it won't ever find out, but there's no guarantee. Businesses are required to report to the IRS the wages they pay their employees, as well as payments they make to independent contractors. Plus, evading taxes is illegal.
It's best to amend your return as soon as you realize your mistake, especially if it looks as though you will owe tax. Unpaid tax begins accruing interest, compounded daily, immediately after a filing deadline. The longer you wait to file an amended return, the bigger your tax may be.
Furthermore, if you elect to test your luck and see whether the IRS catches the error, and then the IRS does catch the error two years later, that's two years of interest (and late-payment penalties) that you now owe on top of the unpaid tax.
So how do you know if an amendment is necessary? Check out the list below for what you should and should not report.
You should report:
- changing the number of dependents; for example, you didn't claim a dependent you could have or you realize you claimed a dependent when you shouldn't have
- filing status changes
- any deduction change (standard, itemized, above-the-line)
- personal exemptions
- additional withholding or income
Do not file Form 1040X if you discover an addition or subtraction error you made on your 1040. The IRS itself will check your math. And, yes, the IRS will notify you if a mathematical error results in a change to your taxes, a good one or a bad one.
Now that you've collected all those misplaced tax forms and are ready to amend, read the next page to find out how to fill out your 1040X.