4 Good Reasons To Amend Prior Business Tax Returns
Once your business's annual income tax returns are completed, most owners move on and don't give them much thought again. However, there are times when you should consider returning to these and revising (or amending) past tax returns. Why might a business do this? Here are a few reasons to be on the lookout for.
1. You Made an Error
Hopefully, your tax returns are complete and accurate every year. But errors do happen. This could be as simple as a transposed digit, math error, or items entered on the wrong line. Minor errors that don't affect the bottom line much can generally be ignored. However, if your company or accountant made a material error, it's best to own up to it before the IRS discovers it and penalizes you more.
2. You Want to Change Depreciation
Thanks to the tax code, today's business owners have choices when it comes to taking depreciation. You may have opted to take special depreciation on a past asset purchase and write off most or all of the expense in one year, for instance, or chosen to spread out depreciation.
But what if your business could benefit more by altering that depreciation schedule? You can amend up to three years' worth of returns and make those retroactive changes.
3. Laws Changed Retroactively
Most tax law changes are announced before they actually take effect. However, some laws include both a future component and a retroactive time frame. If a law change could be applied to a prior year and your business would benefit — or if the law changes a mandatory reporting item — your accountant may suggest amending the older year.
4. You Missed Credits or Deductions
The tax code is complex, and it's not surprising that some things can be missed. Businesses have access not only to common credits and deductions for things like operating expenses and depreciation, but they also have access to much more esoteric, unfamiliar credits. Some of these credits may only apply to a business once in its operation life, so you should take them when you can.
If your business missed out on credits for hiring certain individuals, making property improvements, or investing in certain sectors, for example, you can amend a return to claim these later.
Where to Start
While amending an older tax return may seem like a lot of trouble, it's relatively easy to accomplish. And if the tax savings or the trouble you avoid with the IRS is significant, it's worth your effort. Want to know more about amending? Start by meeting with an accountant in your state who specializes in business tax preparation.