What to Do if You Catch a Tax Mistake

There’s probably no worse feeling than realizing you made a huge goof. And when that error is on your taxes? Forget about it – sheer panic. You already sent in your 1040 and Schedule C to the IRS, so game over. Might as well jump ship and move to Australia.

At least, that’s what you would do if you didn’t already know about the 1040X. Wait, you don’t know about it? Well, let’s fix that right now! The 1040X is one of the handiest of the tax forms as it’s practically saved thousands of people from having heart attacks for years. It’s definitely one to know about.

What Is the 1040X Form?

The 1040X, or the Amended US Individual Income Tax Return form, is a way for you to send in a corrected version of your tax filings. If you ever realized after sending in a form that you forgot to include a 1099 or include a deduction (or put in one too many!), this is the form for you.

This year, one of the big selling points of the 1040X is the existence of late 1099-K forms. Some online sellers have even gotten them only a few weeks before the deadline! This meant that they had most likely already filed and now had a completely new form to file. Luckily, the 1040X was there to save the day.

The actual form takes a little while to complete. This is mainly due to basically having to do everything twice. You have to include the information that was incorrect on your original filing, also making sure you include the corrected version of everything.

You have up to three years after the initial filing was due (for instance, for 2011 taxes you would have to file the 1040X by April 17th, 2015), so there’s no huge rush. Take your time and get everything right the first…well, second time.

Particulars of the 1040X Form

There are a few particulars about the 1040X that are worth mentioning. For one, we mentioned taking your time to get everything right. Well, the IRS even says they recommend you wait until you get your refund or later before filing the 1040X. Why? Who knows, but it shows they’re not worried about getting your amendment instantly.

Also, there are a multitude of reasons to file an amended return. Did PayPal send a really late 1099-K? How annoying, but at least you can fix it. Just realized you could’ve deducted a portion of your mortgage and utilities because you operate your business out of a dedicated home office? That might result in a much larger refund – send in a 1040X as soon as you can.

If any of your fixes include a revised schedule such as a Schedule C to detail self-employment income and expenses, it’s a good idea to fill out a new one and send it in with the 1040X. Finally, make sure to be as detailed as you can when explaining the changes just so there’s no confusion on either end.

Getting Your Business Finances Ready for the End of the Year

Well, it’s here…time to start on your annual tasks to get ready for the new year! A big part of getting ready for 2012 involves organizing your taxes. We know it’s a giant pain in the Christmas sweater, but it has to be done, or else you risk a giant payment to the IRS!

But don’t fear, because there are several things you can do to prepare yourself for this yearly paper shuffle.

Organize Receipts and Categorize Expenses

If you haven’t been doing this all year, you may have some task ahead of you. But organizing your business receipts can go a long way towards getting you ready for what lies ahead.

For one, when doing your taxes, you want to have as much information as possible. If you only have a vague idea of how much you spent on your business over the year and no valid proof, it may end up costing you. Printer paper is one thing, but what about all the travel expenses you racked up? You want all that info in hand so you can properly log it (and claim the tax deduction!).

Another reason to properly organize your receipts is again about proof. You can write all the expenses you want on your tax forms, but in the end, the IRS needs proof they exist. If you submit your tax forms and you can’t back up your claims, there will be trouble ahead indeed!

You should also consider categorizing your expenses ahead of time. This way it’s much easier to add them up when it comes time to actually do your taxes. Some of the most common categories will be utilities, transportation, supplies, and advertising, though your business may have some unique ones.

Verify Income

Now is also a good time to check all the numbers regarding how much money you made in 2011. Many of Outright’s users are self-employed or independent business owners, so they must worry about paying in quarterly taxes. This is usually calculated based off yearly income, which for obvious reasons needs to be up to date.

Some freelancers or business owners like to go off the numbers they had the previous quarter. However, you may be paying too much if you do this. This is why we recommend recalculating your income as much as possible in order to be accurate. (Confused about quarterly estimated taxes? Check out our Quarterly Estimated Tax Cheat Sheet.)

Integrate Your Financial Accounts Into Outright

There’s no sense in doing this all by yourself. Keeping track of all your business expenses and income can be tough to do, especially when you have so much else to consider. So instead of tackling tedious data entry every time you collect from a customer or buy supplies, why not let Outright help?

Integrate your bank accounts into our intuitive software, and we’ll pull in all your transactions so you never have to spend hours and hours entering them by hand. We’ll also help with the aforementioned categorizing so that you can quickly and easily fill out your Schedule C at the end of the year and file your taxes.

This way, getting ready for the New Year is as easy as pumpkin pie. Now you can concentrate on redoing your shipping model and revamping your website instead of tackling annoying paperwork!

About the Author:
Laura Messerschmitt is the Vice President of Marketing at Outright, a free online accounting software for small businesses. She loves helping the self-employed and small businesses to be more successful and grow their businesses.