Should you file an amended return?

Suppose you’ve just discovered a mistake on the 2017 tax return you filed this spring. Should you file an amended tax return?

Strategy: Weigh the potential pros and cons. Then decide what’s best for you personally.

Although there may be extenuating circumstances, the outcome usually depends on whether you owe Uncle Sam or Uncle Sam owes you.

You owe Uncle Sam: File an amended return right away. It doesn’t mean you’re going to jail if you don’t, but it’s best to come clean with the IRS as soon as possible. If you file an amended return within weeks of submitting the original, the IRS likely won’t assess any penalties. Of course, you’ll still be liable for the tax liability resulting from the error, plus interest dating back to the original due date.

On the other hand, if you gamble that the IRS won’t detect the error, you’re playing with fire. The penalties for an oversight can be substantial. The IRS generally has three years to audit your return (six years if you underreported income by 25% or more). And there’s no statute of limitations if fraud is involved.

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If you can’t pay your tax bill in full right now, file your amended return anyway. Then you can negotiate a payment deal when the IRS tallies up the damages.

Uncle Sam owes you: It’s a different story if you uncover an error tilting the return in your favor. You might think it’s a no-brainer—after all, what do you have to lose?—but it’s not so simple. Here are two reasons:

1. It might not be worth the time or hassle if you’re talking about spare change. And, if you’re paying a tax pro for preparing the return, the cost might even outweigh the tax savings.

2. You may be drawing extra attention to your return by submitting it for a second time. It gives the IRS another chance to view your return through a slightly different lens.

What if you discover errors that have occurred in multiple tax years? You must then file a separate amended return for each year in question. Also, mail each amended tax return in a separate envelope. Note the tax year of the return you are amending at the top of Form 1040X. Check the form’s instructions to confirm where to mail your returns.

Tip: Some tax experts claim that filing an amended return increases your risk of audit, but there’s no concrete proof to back that up.

How long should you keep records?

The conventional wisdom is to hold onto tax records for at least three years (i.e., the usual statute of limitations for IRS review). To be on the safe side, however, you might keep them for longer. Some tax experts say that 10 years is good enough.