If you found out you made a mistake with your 1099 taxes, you may need to file an amended Schedule C. Here’s what you need to do.
Common Schedule C Mistakes
Many people file their own taxes by hand or using tax filing software. This usually works out OK, but there are a few things on Schedule C that commonly trip people up.
One common mistake is entering 1099s. You might forget about a 1099, or you might not realize that you had income reported on both 1099-NEC and 1099-K. So your reported income could be too low or too high.
Additionally, some definitions, like what counts as business mileage or business meals, aren’t entirely clear. The same goes for business deductions in general.
So people think they can deduct anything that has any relation to their business and later find out it wasn’t deductible or only qualified for a partial deduction. Many people don’t even realize they made a mistake, and the IRS audit chances are so low they often get away with it.
Once you start learning more about taxes or you start making enough to file with an accountant, there’s a good chance you’ll realize you did something wrong in the past.
When to Amend Schedule C
You should generally file an amended Schedule C any time you figure out you made a mistake when you originally filed your tax return.
- If you paid too much in taxes, you’ll get a refund when you amend.
- If you didn’t pay enough in taxes, you’ll owe less in interest and penalties than if you wait for the IRS to figure it out.
- If you made other mistakes, such as selecting the wrong accounting method, that didn’t change your taxes this year, they might cause you problems in a future year.
One time that you may not need to file an amended Schedule C is when the IRS has already sent you a notice saying you made an error on your Schedule C. For most IRS notices, you simply respond with the information that they want instead of amending your tax return. The IRS will make the adjustments for you.
Another thing to watch out for is the statute of limitations. The IRS normally has 3 years to audit your tax return, although it could be longer if you underpaid by a lot. If it’s been a long time since you filed, you may want to risk not amending and hoping the IRS doesn’t realize you owed before their deadline to audit you expires.
You also usually have up to three years from your original filing deadline to claim any refund you’re owed. So if you find out you should have gotten a bigger refund, you’ll normally want to amend ASAP.
What happens if you don’t amend Schedule C?
If you don’t amend Schedule C, one of two things can happen. First, if you were owed a refund, you could lose your chance to claim it.
Second, if you should have paid more in taxes, the IRS may find out in an audit. When they do, you’ll owe interest and penalties back to your original tax filing deadline.
IRS audits can normally happen up to three years after you filed your tax return. If you substantially underpaid your taxes, the IRS may have up to six years. And in cases that count as tax evasion or tax fraud, they have unlimited time.
Depending on what you owed, waiting for the IRS to audit you can cost you hundreds or thousands of dollars in additional penalties plus interest versus filing now. IRS penalties are based on your original payment deadline, so the farther back that is, the more you’ll pay.
How to Amend Schedule C
When you amend your tax return, you’ll file Form 1040X which is an amended return. Your Form 1040X will replace your original Form 1040, but you only redo the parts that changed.
For an amended Schedule C, you’ll usually redo your entire Schedule C. Most of this is copying the correct numbers from your original Schedule C. Make any changes needed, then redo the totals.
You’ll also need to attach a statement explaining the changes that you made. This doesn’t need to be super detailed — it just needs to let the IRS know what you changed and why.
When an amended Schedule C results in changes to your business net profit, you may need to make additional changes to your Form 1040. These can include:
- Recalculating your self-employment tax and self-employment tax deduction
- Recalculating your adjusted gross income
- Recalculating any health insurance subsidies
- Reviewing your retirement account contribution limits (especially if you maxed out your accounts and the changes lowered your income)
- Reviewing any personal tax deductions or tax credits based on your Adjusted Gross Income
Many tax filing software companies have an amended tax return option that will do all of this for you. Another option is getting a copy of the tax filing software for the year you need to amend, redoing your entire tax return, and copying that info to Form 1040X.
If you’re not using tax filing software that allows you to electronically file Form 1040X, mail your amended return to the address in the Form 1040X instructions (it varies based on where you live and what you’re amending). Don’t simply file a new Form 1040 (without the amended return forms), or the IRS will reject it as a duplicate tax return.
How to Pay an Amended Schedule C
When you amend your Schedule C and owe additional tax, you should pay as soon as possible. Interest and penalties add up until the date you pay.
You can mail a check with your amended return or go to the IRS website and make a payment online. If you pay online, be sure to select the amended return reason for payment.
Some tax filing software will calculate the penalties and interest for you. Otherwise, make a payment for the tax due, and the IRS will send you a bill for the penalties and interest.
If you can’t afford to pay, it’s still normally better to file Form 1040X ASAP. That can help you avoid getting audited by the IRS or getting assessed additional accuracy-related penalties. You can then explore options like getting on an IRS payment plan or applying for a personal loan.