We’re getting closer and closer to the 2007 tax deadline. As I was doing my own tax return I got to thinking — what sort of change would I need to make to a prior year’s return that would warrant filing an amended return?

In looking at the IRS FAQ It states:

If you did not report all your income or did not claim a credit, you are entitled to file an amended or corrected return using Form 1040X (PDF), Amended U.S. Individual Income Tax Return

That got me to thinking — “entitled” or “required”? Clearly if you missed a deduction that would put more money in your pocket, the IRS could care less if you really claim it. If you didn’t report some income, I’d think that the IRS would care a bit more because that is money in their pockets that is missing.

Personally, as I was going through mine, I realized that I missed some deductions previously (or shall I say the unhelpful accountant I had didn’t ask about them and I didn’t realize they were missing) that could have been deducted in my business. As I went through this year’s return, I decided it wasn’t worth the effort to bother filing an amended return. The amounts were minimal and would have very little upside impact to me. But it did get me thinking about this whole topic.

So, when do you absolutely need to amend? When is it simply an “option”?

That leads me to this installment of the “What Would You Do” question. In this case it is actually several, related questions.

  • What would you do if you discovered that a previous year’s tax return was incorrect because you failed to report income?
  • What would you do if you discovered that a previous year’s tax return was incorrect because you failed to report deductions?
  • And, what dollar level (or proportion to your personal income/deductions on the return) would launch you into action?

I’d love to hear what you would do (or maybe have already done at one point) in the comments below.