Surprise! Dealing with Unexpected Tax Preparation Issues Presenters: Rolando Palacios and Barbara DelBene NCTC 2009 Annual Conference
Amended Tax Return - Form 1040X There are many different reasons that a client might file an amended tax return. They generally fall into one of two categories: 1. Client discovers that an item was omitted or incorrect on a tax return. The most common situations are when a client receives an additional W-2, or finds a lost receipt for an expense, such as interest on a student loan. 2. The IRS disallowed some benefit on a return and the taxpayer thinks that the adjustment is incorrect. This generally happens for one of the following reasons. • • • • Client failed to respond to IRS letters Client sent information to the IRS that was not acceptable to the IRS Client didn’t receive IRS letters IRS made an error or lost documents
Generally, taxpayers have three years to amend a tax return. • On a return filed by the April 15 due date, the taxpayer has three years from the due date to file an amended return. For example, most taxpayers have until April 15, 2012, to file an amended return for tax year 2008. On a tax return that was filed late, the taxpayer has three years from the date the return was filed. For example, if a 2002 return was filed July 31, 2006, then the taxpayer has until July 31, 2009, to file an amendment. When tax has been paid after the due date of the return, the taxpayer has until two years from date of payment to file an amendment – even if this is after the original three-year limit. For example, if a taxpayer timely filed a 2001 return, but didn’t pay the tax due until March 7, 2007, the taxpayer has until March 7, 2009 to file a 1040X.
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TaxWise Hint: To prepare an amended return, start with the original return already entered on TaxWise. If the return is not on the computer, enter the original, then do the 1040X. Make sure that the return that you are starting with on TaxWise matches the tax return that was filed. CAUTION: Never prepare an amended return unless you have a copy of the original return. The Form 1040X has three columns. Column A lists the income, adjustments, deductions and credit amounts that were on the original return. Column B lists the corrected amounts. Column C is the difference between columns A and B.
Center for Economic Progress
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June 2009
Surprise! Dealing with Unexpected Tax Preparation Issues Presenters: Rolando Palacios and Barbara DelBene NCTC 2009 Annual Conference Here are the basic steps for preparing an amended return: • • • • Open the original return and then open a Form 1040X. On the 1040X screen, select the box to override all original entries. Open the state amended return form and select the box to override all original entries. Enter the new information, as usual. For example, if the client has an additional W-2, select new W-2 and enter it.
Warning: Do not make the changes until you have opened and selected the override box on both the 1040X and IL-1040X. • • • • TaxWise will make all the necessary adjustments and calculate the 1040X and the amended state return. There is a space on page 2 where you will enter an explanation of why the return is being amended. This is a required entry! Column A of the 1040X generally must reflect the return as originally filed. If the IRS or the taxpayer has previously adjusted the return, column A must show the amounts after the adjustment..
Note: Everything you enter after checking the override box changes the return. However, TaxWise saves the original return. You can access the original using: File, Return Versions.
Form
Wage and Tax Statement
2008
Center for Economic Progress
2
June 2009
Surprise! Dealing with Unexpected Tax Preparation Issues Presenters: Rolando Palacios and Barbara DelBene NCTC 2009 Annual Conference ITIN Return with Wage Income When you prepare a tax return for a client with an ITIN, the employee number that TaxWise generates on the W-2 will be the ITIN. This will not match the employee number on the actual paper W-2. On the W-2 on TaxWise, override (F8) to enter the SSN that is on the paper W-2, box d, employee number. This will not cause a diagnostics problem and the return can be filed electronically.
Center for Economic Progress
3
June 2009
Surprise! Dealing with Unexpected Tax Preparation Issues Presenters: Rolando Palacios and Barbara DelBene NCTC 2009 Annual Conference
Employee Misclassified as Self-employed When a worker appears to be an employee who was erroneously treated as selfemployed, this can be reported to IRS using Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding. Report this income on the 1040 tax return using Form 8919, Uncollected Social Security and Medicare Tax on Wages. Before using Form 8919, review the reason codes on Form 8919 to ensure that the worker qualifies. When Form 8919 is used, do not report this income on a Schedule C-EZ, C, or on a W-2.
Center for Economic Progress
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June 2009
CORRECTED (if checked)
PAYER’S name, street address, city, state, ZIP code, and telephone no. 1 Rents OMB No. 1545-0115
Berry Street Eatery 777 Berry St Springfield, IL 62704
$
2 Royalties
2008
Form
Miscellaneous Income
Copy B
For Recipient
$
3 Other income
1099-MISC
4 Federal income tax withheld
$
PAYER’S federal identification number RECIPIENT’S identification number 5 Fishing boat proceeds
$
6 Medical and health care payments
43-2365008
RECIPIENT’S name
456-36-5008
$
7 Nonemployee compensation
$
8 Substitute payments in lieu of dividends or interest
A. G. Gordon
$
Street address (including apt. no.) 9
11,000.00
$
Payer made direct sales of 10 Crop insurance proceeds $5,000 or more of consumer products to a buyer (recipient) for resale $ 12
222 Main St.
City, state, and ZIP code 11
Springfield, IL 62704
Account number (see instructions) 13 Excess golden parachute 14 Gross proceeds paid to payments an attorney
$
15a Section 409A deferrals 15b Section 409A income 16 State tax withheld
$
17 State/Payer’s state no.
This is important tax information and is being furnished to the Internal Revenue Service. If you are required to file a return, a negligence penalty or other sanction may be imposed on you if this income is taxable and the IRS determines that it has not been reported.
18 State income
$
Form
$ 1099-MISC
$ $
(keep for your records)
$ $
Department of the Treasury - Internal Revenue Service