What Happens If You File Your Taxes Wrong?

SHORT ANSWER: If you make a mistake on your taxes, you may need to file an amended return with the IRS quickly. Failing to do so could lead to penalties or interest payments.

With just a few days remaining to file your 2023 tax return, this important annual activity is likely on your mind. As you start to feel the time crunch, you might be wondering what happens if you file your taxes wrong. Processes in place can help resolve such issues, but ideally, you get it right the first time. Here’s what you need to know if you discover mistakes on your tax return.

What Happens if I Accidentally Filed My Taxes Wrong?

If you accidentally file your income taxes wrong, you should act quickly. Depending on whether you find the error or the IRS does will impact how you handle the situation.

If you discover the mistake, don’t refile your return. Instead, prepare an amendment to your return. Filing a second return could cause serious issues.

When the IRS finds the mistake, they’ll contact you with a notice to correct the return. Complete the requested form within the deadline it provides.

Some reasons you might discover a tax error include:

• Getting late forms in the mail and realizing you left off income or deductions
• Missing a document in the shuffle when entering your tax information
• Realizing you forgot to include information when you packaged documents and sent it to your CPA to file your taxes for you
• Discovering you skipped a form or missed a form during the process of inputting your important information

Once you realize you’ve made a mistake, you might be wondering if the IRS will catch your mistake. Ideally, you don’t want to wait until it potentially notices. If it doesn’t notice now and you get audited in a future tax year, you’ll have to pay the taxes plus the interest that has accrued over the years. It’s best to make sure your tax return is accurate now than to wait and see how things turn out.

You’ll know there was a mistake on your taxes if you discover you left income off your return or improperly claimed a deduction you didn’t qualify for. You might notice this while reviewing the information, or you might get a notice in the mail from the IRS requesting that you complete an additional form or pay additional taxes.

How to Amend Your Tax Return

Tax filing amendments are more common than you might think. The IRS will send you a notice if there is an issue with your taxes. Act quickly to file the form requested and update your information. Here’s what you can expect when amending your tax return.

1. Review the information the IRS sent you and compare it with your filing to ensure you truly made a mistake. Taxes are complex, and you likely won’t be able to remember how you calculated your taxes off the top of your head. That’s why good documentation can help avoid these situations.

2. Before amending your taxes, see if the IRS did it automatically based on the information it knows. Sometimes the IRS does this and auto-updates your tax refund up or down accordingly. In that case, you don’t need to file an amended return but can resolve the problem by responding to the letter and paying additional taxes due, if any.

3. When an amendment is necessary, you’ll use Form 1040-X. Attach additional information or updated forms to fix the error.

4. Pay additional taxes owed quickly to avoid accruing more interest on the debt.

What Are the Most Common Tax Mistakes?

There’s a reason why there are professionals who dedicate their careers to filing taxes – it’s complex and takes deep research to understand the ins and outs. Here’s a look at some of the most common mistakes people make on their taxes.

• Poor math: If you don’t do financial math regularly, it’s easy to miss a 0 or move a decimal point to the wrong place. Digital tax returns have reduced the likelihood of this happening though. Just be sure to check the calculations.
• Overlooked deductions/credits: Your tax burden might appear higher if you forget to include a deduction or credit that you qualify for. With so many available, it’s hard to keep track of everything and know that you’ve input the right information. Review the list of deductions to ensure you don’t miss one and artificially increase your tax burden.
• Failing to report income: You might discover that you omitted to include a W-2 or 1099-NEC form that you received or it might have come in the mail after you filed your taxes. No matter the reason for the missing income, you’ll want to file an amendment before the omission triggers an audit.
• Dishonesty: Some people are just dishonest when filing their taxes, hoping no one will notice and they’ll get a bigger tax refund. Perhaps they claim dependents they don’t have or try to hide income that they made legitimately. Regardless, it’s illegal to file a fraudulent tax return or intentionally omit information.

What Is the Penalty for an Incorrect Tax Return?

What happens if you make a mistake on your tax return? You can face a variety of penalties.

• Underpayment penalty: If you underpay your taxes, you could face a penalty of 0.5% of the underpaid amount for each month that you fail to pay the taxes.
• Tax fraud penalty: You can incur a 75% tax fraud penalty if you intentionally input inaccurate information. If you can’t pay, the IRS can sell your property to pay your debt.
• Incorrect tax return penalty: If you misrepresent your finances, you could incur a 20% penalty on the amount you owe. Generally, you’ll learn of this penalty as part of a tax audit.
• Penalty for failing to pay estimated taxes: When you have a job that doesn’t withhold taxes on your behalf, you’ll need to pay quarterly estimated taxes. You’ll avoid this fine in your first year of income without withholdings. In subsequent years, you’ll avoid it as long as you owe less than $1,000 or paid at least 90% of your tax burden for that year. Otherwise, you’ll face a 4% underpayment on the money owed.

The penalty for filing taxes incorrectly varies based on what you did wrong. But you can accrue interest on the funds for as long as you owe the money. So if you are audited and the IRS finds that you owed taxes from four years ago, you’ll owe more than just the original tax amount. You’ll also owe interest over the years on that amount.

Can I Go to Jail for Filing my Taxes Incorrectly?

You could go to jail for deliberately filing your taxes fraudulently. For example, if you claim a dependent you know is not in your household or intentionally leave out income, the IRS might charge you with fraud and you’ll face a criminal suit. 

Most incorrect tax returns are not subject to criminal prosecution because they are honest mistakes. The only way you could face jail time is if you purposefully leave off information or include improper information on your return. Simple mistakes are not unlawful, which means you can’t face prosecution for them.

How to Avoid Mistakes on Your Tax Return

If you haven’t filed your tax return yet, you can still get organized and avoid mistakes. Here’s how to prevent tax return errors.

1. Get organized: File receipts, important documents and proof of business expenses in a tidy place. Perhaps that’s a paper folder, or you might keep it digitally using expense tracker apps for greater ease of management. This process will help ensure you miss nothing when filing your taxes.

2. Prepare for your filing: Don’t try to file your return too early before you’re certain you have all the required documentation. You’ll know what income you’re expecting to receive documentation for and what tax receipts you need for donations or other deductions. Be patient and wait until you have it all before you file. If you don’t receive the necessary documentation, file for an extension beyond the April deadline. Estimate how much you might owe so that you can pay when you file the extension to avoid interest charges.

3. Work with a professional: For advice and insights on credits and deductions you qualify for, work with a tax professional. While tax filing software will take you through many questions and scenarios, it isn’t perfect and you could still input errors. A financial adviser or tax professional can ask questions and explain various situations and options for reducing your tax burden.

Amend Your Taxes Quickly

Once you know of a tax return error, you should fix it quickly. The sooner you amend your tax return, the less likely you will owe interest on additional taxes or face penalties for the mistake. If necessary, you can set up a payment plan to avoid ongoing penalties and help you get out of debt to the government for your taxes.