November 23, 2020  
 
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Correcting a Past Mistake in a Small Business Tax Filing

The IRS understands that mistakes happen. Here's how to stay on their good side by correcting a past mistake in your small business tax filing.

You thoughtfully reviewed your small business income tax return before signing it and sending it off to the IRS for processing.

Then a few weeks later, you discover that you made a mistake that could impact your status with the IRS. Now what? Do you call the IRS to inform them about your mistake? Or do you cross your fingers and hope that the IRS won't notice the problem with your return?

The answer is neither. The IRS is accustomed to dealing with mistakes and oversights on tax returns. Although they encourage all taxpayers to get it right the first time, they recognize that mistakes happen and provide several mechanisms for correcting mistakes in a small business tax filing.

Whether your mistake occurred last month or last year, here is how the IRS wants your business to make the appropriate corrections and bring your past returns into complete compliance with the tax code.

  • Earlier is better than later. It's always better to amend an incorrect return before you receive a notice from the IRS. If you correct the return before the error catches the eye of an IRS agent, you eliminate (or at least minimize) any suspicion that the error was committed intentionally.
  • Forms 94X. The 94X series of forms is designed to correct errors in the reporting of employment taxes. Employers who have filed incorrectly can make adjustments for overpayments or underpayments using one of five forms designated for this purpose.
  • Form W-2C. W-2C is the appropriate form for correcting employee wage and tax statements. If you later discover that you have issued an incorrect W-2 form for an employee's yearend wages, you can't simply reissue a new form you'll need to file a Form W-2C.
  • Form 1040X. The 1040X is a common form for correcting past mistakes in a business tax filing and can be used for businesses that are classified as pass-through business entities. The filing of an amended 1040X needs to be done expeditiously because it will arrest the accrual of additional fines and interest penalties.
  • Form 1065. Partnership corrections require the re-filing of Form 1065, U.S. Return of Partnership Income, with the "amended return" box checked. It's important to note that with the exception of the checkmark and corrections, this is the same form that was initially filed.
  • Form 1120X. The 1120X is the proper vehicle for amending a corporate return. Unlike the partnership return, this is a completely different form than the original filing mechanism.
  • Other forms. For corrections to other forms, you will need to consult your tax preparer and follow the instructions that accompany each specific form.

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How Long to Keep Small Business Tax Records
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