How to Fix Mistakes on Your Business Tax Return – Fast & Easy

Step 1: Stay Calm & Face The Issue

Discovering a mistake on your business return can be upsetting, but it happens more often than you realize. Thankfully, the IRS has a fairly easy process for those who need to correct errors on their returns. The key is to address the issue as soon as possible, as this will help keep penalties and interest to a minimum.

Step 2: Identify The Type of Mistake

Next, it’s important to determine the severity of the mistake. Not all require you to make changes to your return. There are several that are handled internally by the IRS. This generally includes:

• Simple mathematical errors
• Incomplete information
• Missing forms or schedules

If the error does not change your overall tax liability, the IRS may send a letter requesting additional information or make the changes for you. You will need to correct your return, however, for mistakes involving underreported income, misclassification of employee wages, or deductions/credits you were not entitled to claim.

Step 3: Should You Amend or Supersede?

Once you realize that your mistake will adjust your tax liability or refund amount, it’s important to correct your return as soon as possible. Depending on the timing, this may mean filing a superseding return or submitting an amended tax return.

When to File a Superseding Return

Generally, you can file a superseding return if it’s submitted before the filing deadline, including tax extensions. Additionally, there is no limit on the number of superseding returns you can file.

Take this example:

A business owner files their return on March 10, but a week later receives a Schedule K-1. They file a superseding return to include the new information, then they receive another Schedule K-1 a few days later. The business owner files a second superseding return before the filing deadline to ensure all information is up-to-date and correct.

But what if the IRS has already processed your return? In this case, even if the filing deadline has not passed, you may not submit a superseding return. Instead, you’ll need to file an amended tax return.

When to File an Amended Tax Return

If the filing deadline has passed or the IRS has already processed your return, you’ll need to file an amended tax return if the error changes the amount of tax you owe or your refund amount. Depending on your entity type, you should file one of three types of amended returns:

• Form 1040-X: used by sole proprietors and single-member LLCs filing a Schedule C.
• Form 1120-X: used by corporations that need to amend a corporate income tax return.
• Form 1065-X: used by multi-member LLCs and partnerships.

Be sure to include a detailed explanation of the tax mistake and any relevant documentation when filing your amended return.

Step 4: Paying What You Owe

In cases where your error results in a larger tax bill, you’ll need to submit the additional funds with your amended return or pay them online. Failure to do so will result in higher penalties and interest fees. If you’re unable to pay the balance in full, request an installment agreement. This will allow you to make payments over several months. Although penalty and interest fees will still accrue on any outstanding balance, it will be less than if you simply ignore your bill.

Step 5: Tracking Your Amended Return

Unfortunately, amended business returns cannot be tracked online. If it’s been at least three (3) weeks since you submitted your amended return and want a status update, you’ll need to call the IRS directly at 800-829-4933. IRS agents are available Monday through Friday from 7 a.m. until 7 p.m. local time.

Step 6: When to Respond to Notices

In some cases, the IRS may find a mistake on your return before you do. When that happens, they typically send a notice that explains what changes were made and any adjustments to your balance owed or refund due. Carefully review the notice and pay close attention to any deadlines provided. If you disagree with their changes, follow the instructions for filing an appeal. Whatever you do, don’t ignore it.

Step 7: How to Prevent Future Mistakes

We all know that mistakes happen, but there are some things you can do to improve your processes and minimize your chances of it happening again.

1. Use Accounting Software. There are several affordable accounting tools available that are user-friendly and can even pair with popular tax preparation software. Options like QuickBooks and Xero can sync your financial information, provide cash-flow summaries, and be customized to fit your needs.
2. Stay Organized. Don’t shove your receipts, invoices, and other paperwork into a box and forget it. Use scanners, apps, and accounting tools to digitize and organize your documentation in real time. Plus, you’ll never have to worry about losing important documents in the event of a fire or flood.
3. Conduct a Mid-Year Review. When summer rolls around, it’s a great time to review your revenue and tax payments to ensure they’re still on track. If anything has changed, you can adjust your quarterly tax payments to ensure you don’t get hit with a larger-than-expected tax bill next year.
4. Work With a Tax Professional. If dealing with your taxes just seems too much, let the experts do it for you. You have plenty on your plate running your business. A tax professional has the expertise and knowledge needed to keep you compliant and out of trouble with the IRS.

Final Thoughts

Making a mistake on your business tax return may feel like a setback, but it’s also an opportunity to tighten your financial processes and stay ahead of future issues. By taking prompt action, understanding your options, and learning from the experience, you can not only correct the error but also strengthen your business’s overall tax strategy. And remember – you don’t have to navigate this alone. Whether you’re amending a return, responding to an IRS notice, or just trying to prevent mistakes next year, working with a trusted tax professional can save you time, stress, and money in the long run.