What Happens if You Incorrectly Calculate Your Taxes?

A young woman sits at a desk late at night and tries to work on her taxes.
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There’s no doubt about it — filing taxes can be difficult. While some returns can be relatively simple, once your financial life becomes a bit more complicated, your chances of making a mistake when you file your return increase dramatically.

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Some errors may actually work in your favor, entitling you to a refund from the IRS. But other common mistakes, such as overlooking some of your income or incorrectly claiming a deduction or credit, can result in you owing more than you paid. Since underpaying your taxes can lead to the assessment of penalties and interest, it’s important to do all you can to file a correct return.

However, if you find out that you did calculate your taxes wrong, here are the next steps you should take.

Don’t Panic

The first thing to remember if you calculate your taxes wrong is to stay calm. You’re certainly not alone, as countless taxpayers make mistakes on their returns every year.

The good news is that in most cases, resolving an error on a tax return is actually a fairly simple process. You’re not going to get hauled off to jail by the IRS for even major errors on your return, but you will have to correct them at some point.

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Be Patient

In many cases, the IRS will catch a simple error on your return, even if you are unaware that you made it. Every year, thousands of Americans receive letters from the IRS informing them that there were calculation errors on their return. These letters will either request additional payment or actually come with a check due to overpayment.

Bear in mind, however, that an IRS letter isn’t necessarily the final word. If you disagree with the calculations the IRS has made on your behalf, you can get back to the agency and appeal their decision.

Since the IRS catches many common taxpayer errors, if you do realize that you made a minor mistake on your taxes, you may want to wait until the IRS processes your initial filing. This can save the time and effort required to contact the IRS. However, if it has been some time since you filed your return and haven’t heard anything back, you may have to take the next step of filing an amended return.

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File an Amended Return

To update an erroneous return, you can’t simply call the IRS and speak to a customer service agent. You’ll actually have to file an amended return via Form 1040-X. This form is similar to the Form 1040 you likely used to file your original return, but in addition to providing the income and deductions you are claiming, you’ll have to include the information that you are changing on your return. 

When filing an amended return, it’s important to comply with IRS timetables. Specifically, you must file your amended return within three years of when you filed your original return or within two years of when you paid the tax, whichever is later. For purposes of amended taxes, your return will be considered filed as of the return due date — typically April 15 — even if you filed it before then.

This time frame allows you to wait a bit for the IRS to find your mistake first before you go through the sometimes burdensome process of filing an amended return. However, it’s important to note that if your error results in you owing more money to the IRS, you shouldn’t delay filing an amended return because interest and penalties can accrue rapidly.

Recommendation: Use an Accountant or Tax Software

Accountants typically save their clients much more money in the form of increased refunds, reduced tax bills and prevented errors than they earn in fees. If you prefer to file your taxes on your own, though, at least consider using a tax software program to help you out.

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If nothing else, tax software can ensure that you haven’t made any simple math errors on your return. Good tax software can also suggest deductions or credits you may have overlooked, boosting your refund or reducing your tax liability. Most top-tier software programs not only guarantee correct calculations on your return but will also provide you with audit defense in case the IRS takes a closer look at your return.

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About the Author

After earning a B.A. in English with a Specialization in Business from UCLA, John Csiszar worked in the financial services industry as a registered representative for 18 years. Along the way, Csiszar earned both Certified Financial Planner and Registered Investment Adviser designations, in addition to being licensed as a life agent, while working for both a major Wall Street wirehouse and for his own investment advisory firm. During his time as an advisor, Csiszar managed over $100 million in client assets while providing individualized investment plans for hundreds of clients.
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