Taxes are hard. They can be a pain. That's why some people hire a CPA if their situation is complicated. It can be pretty stressful if do your own taxes. What if you mess up or miss something?
I have good news and bad news. The good news first: If you mess up, it can be fixed. The bad news: You may not be happy with the results.
Consider Scenario A: Grownup Joe had a rough year last year. His company laid off almost half of their staff in February. He collected unemployment for a few months until he found a new job, where he's been working ever since. He did his taxes himself with TurboTax, and got a nice refund.
After Joe filed, however, he received a letter in the mail saying "Important Tax Information Enclosed". It's the form reporting his unemployment compensation for last year (Form 1099-G). He already filed his taxes, but didn't enter that info into TurboTax. Cue freakout.
Don't panic, Joe! What should he do now? First and foremost, he shouldn't just ignore it. It could turn into more of a pain down the road. Then he needs to refile his tax return. If he didn't choose to withhold taxes from his unemployment checks, he could end up having to pay back some of his refund. (Unemployment income counts as taxable income.)
Consider Scenario B, featuring yours truly: Let's take it back to 2009. I was in college, studying like a madman and listening to the new Taylor Swift album. This was the first year I filed my own return using TurboTax. As you can imagine, I was proud and so pumped to see the Department of Revenue check arrive in my mailbox. I cashed the check and went right to the bookstore. (What else would I have done with it?)
Fast forward two years later. I started working at a small financial planning firm helping their tax professional prep for tax season. As I was scanning prior year's tax returns into our system for our clients (while listening to the newest Taylor Swift album), something caught my eye. Someone received a $400 credit in 2009 for something called "Making Work Pay". So I immediately logged into TurboTax to see if I received that credit on my 2009 tax return. I didn't even know if I was eligible for it, I just figured it was worth a look.
I went to the IRS website, and found if you received wages or self-employment income during 2009 or 2010, you probably qualify for the Making Work Pay tax credit. I did earn wages in 2009. I considered myself the best exterior painter in the area, and I also had a summer internship in Boston. So earned income: check. I also learned that the Making Work Pay Credit provides a refundable tax credit of up to $400 for individuals and up to $800 for married taxpayers filing joint returns. I wasn't married yet, nor could I find any reason why I wasn't eligible for the credit. (My income was unfortunately not $95,000, at which point the credit is disallowed.) So I did more research. This time I asked the tax professional at my office for some help.
He confirmed I was eligible for the credit, and should have received it. I'm still not sure why TurboTax didn't catch it. He didn't help me any further, though. And it turned out to be a great learning experience.
Here's what I had to do:
Fixing a prior year's tax return is called filing an amended tax return. In order to amend my previous tax return, I had to file a form called the 1040-X. (If you think you might need to amend a prior year tax return, the option should be pretty easy to find by logging into your tax servicer's website. With TurboTax, there's a section right on the homepage that says "Looking for prior year returns?" By clicking that, you can see the past few years that you've filed taxes with the program. Under 2015, for example, you should see the option "Amend (change) 2015 return".) That's what I did for my 2009 return.
With TurboTax's help, I filed my form 1040-X. The form itself is (shockingly) pretty simple. It has three columns, creatively called A, B, and C. Column A is for your original numbers. Column B is for the amount you'd like to change. And Column C is for the new, correct amount. So I filled out Column A according to the numbers right from the 2009 return I filed. I included the additional $400 Making Work Pay credit in Column B, and then calculated the correct amounts for Column C. I also had to attach another form specifically for the Making Work Pay credit, but fortunately TurboTax took care of that for me.
All in all, the process was pretty painless. Two months later, I got another letter from the Department of Revenue with a check for $400. So I cashed it and paid off some of my student loans. (What else would I have done with it?) Some situations are more complicated, which can make it difficult to fill out the 1040-X form. (In this case, I recommend consulting with a CPA.) It turns out that my example was pretty easy, but it worked out great!
Once you've filed your tax return this year, I encourage you to review everything with a fresh pair of eyes. Maybe you, your CPA, or your online tax program missed something. Also, check in to see which deductions and credits may apply to you, just in case something jogs your memory. (Just keep in mind that you only have three years to go back and amend your return. So if I noticed that 2009 mistake now, I would never see that $400.)
Happy tax season!