Kind taxman will let you retrieve that overpayment


July 14, 2002|By EILEEN AMBROSE

IT'S NO FUN paying taxes, but it's worse to discover that you paid too much.

Perhaps a receipt for a long-forgotten charitable donation turns up after a tax return has been filed, or you find out about a new tax credit that you could have used.

It's not too late to do something about it. Taxpayers generally have three years from the original due date of the return to file amended returns. That means those filing now can right wrongs going back to 1999's return.

More than 3.3 million filers are expected to amend their 2001 returns, according to the Internal Revenue Service. The number of amended returns has steadily risen over the years, and there are new reasons one should amend tax returns:

A tax break passed in March, retroactive to early September, could result in a bigger depreciation deduction for companies and individuals who, say, bought a car for themselves that they also use for business, said Bob D. Scharin, editor of Practical Tax Strategies in New York.

In April, the IRS ruled that the cost of certain weight-loss programs could be taken as a medical deduction, and some people who might qualify for the tax break might have filed before the ruling or only recently heard about it, Scharin said. Medical expenses that exceed 7.5 percent of adjusted gross income are deductible.

Review past filings

Taxpayers might want to review past filings to determine whether they benefit by amending their returns.

In a review of 1998 returns, the U.S. General Accounting Office found that as many as 2.2 million filers overpaid taxes by as much as $945 million, an average of more than $400 each, by not itemizing.

These taxpayers could have lowered their tax bills by deducting mortgage interest and points, state and local taxes, charitable contributions, real estate and personal property taxes. Many of these returns were done by paid preparers, the agency said.

How do you know whether you should have itemized?

"Do you own a house? Do you have a mortgage on it?" asked Carolyn Lebsock, a Gaithersburg financial planner and enrolled agent, meaning she is licensed to represent taxpayers before the IRS. If the answer is yes, you likely should itemize deductions, she said.

Even when filers are due money, they are often reluctant to amend a return.

"A lot of people are afraid to amend, thinking it will call more attention to their tax return. And it's true," said Gail Perry, an accountant and author of Using QuickBooks 2002. "You are filing a return off-season. The IRS is not busy. They have time on their hands. They will pore over it a little bit."

Filers should also amend their returns if it turns out that the mistake is in Uncle Sam's favor and they owe money, Lebsock said. "The earlier you pay it the better. It does limit the penalty and interest on the balance due," she said.

Whether you filed a paper or electronic return previously, you must amend a return on paper. You can get a copy of the amended return form, the 1040X, by calling 800-829-3676 or printing one from the IRS Web site at

Basically, the form has three columns in which filers jot down the numbers from the original return, the difference between the old and new figures, then the way the numbers should have appeared on the return. The form also requires filers to explain the reasons for the changes.

Check with the state

Taxpayers amending their federal returns should check with their states to find out whether they must also file an amended state return.

Marylanders must amend their state returns if they change their federal returns. They won't receive interest if they're due a refund, but Marylanders will pay interest on any tax due at an annual rate of 13 percent. That's more than twice the rate the federal government charges.

"I always tell my clients, `If you have a balance due to Maryland and the federal government and you can't pay 100 percent of both of them, pay Maryland first,' " Lebsock said.

To suggest a column idea, contact Eileen Ambrose at 410-332-6984 or by e-mail at

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