How to Prepare and File an Amended Tax Return for a Small Business
When you Should Prepare and File Federal Form 1040X
If you are a sole proprietor of a small business, you may, at some time, have to file an amended tax return, either for your business taxes or your individual taxes, on IRS Form 1040X. .As a sole proprietor, you file your business taxes with your personal income taxes.
An amended tax return is necessary if something fundamentally changes after you file your tax return.
Since you file your business taxes with your individual taxes, you file an amended tax return if there are any changes to either.
What is an Amended Tax Return?
An amended tax return, submitted on IRS Form 1040X, corrects any errors you may have made on your original tax return. It is not meant to correct math errors since the IRS corrects math errors for you.
An amended tax return is meant to correct errors you may have made such as misstating a deduction. It is also meant to correct errors made by others. For example, you may receive a W-2, 1099, or some other form sent to you by another party, late. You also could receive a corrected tax document. It is meant to correct a variety of special situations such as those faced by members of the military or in cases of natural disasters.
When You Need to File An Amended Return
An amended tax return is filed after your original tax return to correct any erroneous or missing information that was filed on your original tax return.
For small business owners, this includes business income and expenses. Your business income and expenses are stated on an amended Schedule C.
How to Prepare Your Amended Tax Return
Step 1: Fill Out a New IRS Form 1040.
First, download and print out IRS Form 1040X and the instructions to complete it so you can refer to both.
To amend a federal tax return, you have to fill out a new federal IRS Form 1040 for your individual and business taxes. If you have a business, you also fill out Schedule C which reflects your business income and expenses. This schedule is submitted with IRS Form 1040.
If you are amending your tax return due to an error on Schedule C, you fill out a corrected Schedule C. The difference in your business income and expenses from Schedule C is reflected on Line 1 of IRS Form 1040X in your Adjusted Gross Income. Adjusted Gross Income is the last line on the first page of IRS Form 1040. Beginning in 2019, the Adjusted Gross Income on IRS Form 1040 is called Taxable Income.
If your error is in another part of your tax return besides Schedule C, you make the adjustment wherever the error is. You have to recalculate the figures on IRS Form 1040 to correct your return and arrive at Taxable Income.
To complete this step, a new and corrected IRS Form 1040 must be completed. Be very careful when you fill out a new IRS Form 1040. The Internal Revenue Service looks at amended tax returns a little more carefully than original returns.
Step 2: Fill Out IRS Form 1040X
Fill out the top of page 1 with your general information. Then, go to the second part where you start entering your income and deductions. You will see three columns. Completely fill out Column A with the figures from your original IRS Form 1040. This is the Form 1040 that you have already filed with the IRS.
Next, go to Column C. fill in the amounts from the new and corrected IRS Form 1040 that you have prepared showing the correction for the error that you have made. At this time, only complete Column C down to Line 15.
Now you are ready to complete Column B. It asks you for the amount of change between Columns A and C. If you don’t have a change in a line item, simply put zero. Any increases should be noted, and any decreases should be in parentheses.
After you complete Column B, complete column C.
Now go to the second page of IRS Form 1040X. Read the instructions at the top of the page carefully. This is the section that you fill out only if you are making changes to the number of exemptions to dependents for 2018 or later.
Farther down page two, you explain the changes you have made on your new Federal IRS Form 1040. Then you sign and date your form.
Step 3: Assemble and File IRS Form 1040X
IRS Form 1040X cannot be filed electronically. It must be mailed to the appropriate address stated in the instructions for the form. Assemble the material required by the IRS to the front and back of the form. The instructions for assembly are given. Do not send a copy of your original IRS Form 1040. Do attach your new IRS Form 1040 and accompanying schedules, along with the completed IRS Form 1040X.
Step 4: Check With Your State Tax Office
You will need to check with your individual state tax filing authorities to see how they want you to amend your state tax return.
What if You Expect a Refund from Your Amended Tax Return?
You only have three years to submit an amended tax return if you think you will be due a refund. If you think you have underpaid, you can file at any time.
What to Do About Other Forms of Business Organizations
If you filed a corporate tax return, then you should amend the return by filing an IRS Form 1120X.
Disclaimer: It is always recommended that you employ a professional for tax preparation.
Internal Revenue Service. "Topic No. 308 Amended Returns." Accessed Feb. 13, 2020.
Internal Revenue Service. "Tax Guide for Small Business," Page 20-39.
Internal Revenue Service. "Instructions for Form 1040X," Pages 11-17.
Internal Revenue Service. "Where to File Paper Tax Returns With or Without a Payment." Accessed Feb. 14, 2020.