Form 1040X instructions: An overview for small business owners

Form 1040X instructions: An overview for small business owners. It’s April 16th. Anna Carlyle is recovering from the busiest season yet at her pet grooming business. She takes a breath of relief because tax season is finally over. She submitted all her tax forms for her small business by the April 15th due date, and now she just wants to take a moment to relax.

Then she realizes something awful. She made a mistake.

As a self-employed worker or the sole-proprietor of your own company, Anna’s situation may be familiar to you. Like Anna, you use IRS Form 1040 to determine, report, and file your income, deductions, and ultimately figure out how much you owe in state and federal income taxes.

But while filing your taxes by the due date can be stressful as an individual, that stress ratchets up a few notches when you’re trying to complete your business taxes on time. Like Anna, as a result of that stress, you might find that you made a mistake on the initial Form 1040 you filed with the IRS. Whether due to a calculation error, an oversight when you reported your company’s gross income, or a variety of other potential mistakes, there’s no need to panic.

Making a mistake on your taxes is nothing out of the ordinary. In fact, by some estimates, up to 20% of Americans make a mistake on their tax return. While the IRS may correct for some errors internally — such as math errors — it also offers U.S. citizens a way to amend their Form 1040 if things change, such as your filing status, your income, and your deductions or credits. And because it’s the IRS, it should come as no surprise that the way you can update that information is — you guessed it — through another form.

The form in question is known as the Form 1040X Amended U.S. Individual Income Tax Return. This is a two-page document issued by the Internal Revenue Service (IRS) for taxpayers who need to correct their original tax returns for any reason.

Unfortunately, the IRS’s instructions to file Form 1040X are over 17,000 words — 19 pages of single-spaced, two-column, 10-point font. While exhaustive, those instructions can feel daunting for small-business owners or self-employed independent contractors who just discovered they made a mistake on their taxes.

The good news is it doesn’t have to be. Let’s review the steps for using and submitting a Form 1040X amended tax return.

Step 1: Determine if you can use Form 1040X

If you filed a Form 1040, then you’re familiar with this individual tax return form. It is frequently used by sole proprietors, independent contractors, entrepreneurs, and small business owners to file their business taxes. As long as your business passes profits and losses through directly to you, then you more than likely filed a Form 1040 and posted your business revenue and expenses to Schedule C of the 1040 form. In fact, filing Form 1040X will work perfectly as long as you:

1. Filed Form 1040, 1040A (1040-A), 1040EZ (1040-EZ), 1040NR, or 1040NR-EZ
2. Received a refund or made a payment using those forms within three years
3. Need to correct elections, filing status, or claims for unused credits

Returning to Anna’s case, because she runs her pet-grooming company as a sole-proprietorship, she filed her business taxes using Form 1040. While she was able to file by the deadline, she realized as she was finalizing her books that she made a mistake when it came to reporting her income. Luckily, Anna knows she can submit Form 1040X to fix her error.

Step 2: Gather the necessary documents

In order to amend your taxes, there are several documents that you’ll need to gather before you start filling out form 1040X. First, you’ll need a copy of the original Form 1040 you already submitted.

Next, you will also need a copy of the amended forms you are seeking to update. For example, if you’re amending your 1040 because an employer or client issued an incorrect W-2 or 1099 the first time you submitted those forms, you’ll also need to include the updated W-2 or 1099 with your amended return. Failure to include these supporting documents might be cause for the IRS to reject your 1040X or delay its processing.

Step 3: Fill out Form 1040X

Now it’s time to get down to actually filling out the two-page form 1040X. To begin, it will ask you for your address, name, social security number, filing status, and income — similar to what you’ve already done on your Form 1040.