Amended Return Fees,
Why they are so expensive!
Many people want to know why it is so expensive to amend a return. I will tell you the prices vary greatly, depending on several factors, so let us look at some of the reasons. There are three basics which will dictate price. First is 'who did the return,' the second is what type of 'Firm' did or was used, and the third is 'How much effort', will it take to correct it. Since all of these factors will define the cost of the amended tax return, so let us first understand what must be done, because each of these factors will play out in understanding why it can cost a so much.
First, when one amends or corrects a income tax return, several events must happen. One, it has to be re-entered into a tax program as it was originally sent, which can be quite daunting especially if the tax program auto corrects all entries. Not every program is over ride friendly and depending on what year it is, the person doing the amend may not necessarily have that year tax program on their computer, so you may have to pay addition for them to load it. This is very common, especially for income tax returns over three years old. You will usually be billed for the return at the current price, this is the price the firm or person would charge for that return if they were to do it now, so remember, what you originally paid last year or several years earlier, would be billed out at this year's prices.
In some cases, expect sticker shock which can easily happen. Imagine if you called several firms a few years ago and asked how much it would cost and someone told you $350. You refused to pay it so you went and bought a tax program for $30 and did your own taxes. Now you come to find out that some mistakes were made but if you correct them you can get back several thousand dollars. The problem is you do not know how to do an amend and the other forms needed are well over your head and you know you need professional help. That $350 return from yesterday is now $550 and then there is the cost of the return. Also, as I mentioned before, expect to be charged extra if they had to load a program to do the amend.
This is just the beginning of expensive. After the return is entered into the tax program as it was original done, incorrectly (someone will pay for that) it is then corrected which usually means more forms, and more forms means, more money, (someone will pay for that).
Third, after all of that is done and it is corrected, the information is placed onto a 1040X which is the form the IRS uses to process amended returns. (Someone will pay for that). Of course there is even more to pay for; have we forgotten about our state?
You only have to amend the State if there is a change in State income tax or "other tax" liability. If there is no change, then you only required to notify the State that you have amended your federal return but that there is no change on the State return. If this sounds complicated, it really isn't. Simply send a statement to the State and say, "Amend Federal, no change to the State". Trust me, the State will figure it out.
But what if there is a change in state tax liability? Then you get to amend it and guess what? If you only have to amend a State, you get to pay for everything because all States are based upon the Federal so to correct a State, you have to do the Federal. (Some one will pay for that.)
A word of caution: Beware of amended returns, as I have been in this business over 29 years, and have seen two types of amends. The first is semi scamy and the second is real legitimate.
Let us take a look at the scamy ones. Here is an example of how they work. Free review of you taxes and a promise to get you money back: You may have paid $350 to have the income tax return done, but you go somewhere else, to have them give you a free look. They tell you they can probably get you back $850, sounds good so you say 'ok'. Of course they explain what has to be done and they charge you a huge amount to reconstruct the return and more for the amended return. Then will have the check sent to them and you can pay when they get your money. When the check comes in, they will go to the Bank with you. You don't care because you just got $200 in free money.
Know this: It is illegal for a income tax preparer to charge a percentage of your refund as a fee for preparing your taxes. It is not illegal for them to charge a percentage of an amended income tax return as a fee for doing an amend.
Then there is the legitimate one where you just got a letter form the IRS saying you owe $12499, Now you have a problem and you need real help.
Depending on where you go, what if they lower your liability and you owe the IRS $400 instead of a $12499. You will pay the $650 for the amend and you still owe $400. You are out $1050, this may sound bad but when the letter you got from the IRS said you owed $12499, it is not so bad after all.
Now let us look at the difference in amending returns.
As I mentioned earlier the 'person who did the return' is a great factor, first, because they already have the return on their computer, they really do not have much or anything to enter, so that should save you a buck or two. An example would be the $650. If I did the return, you would pay $150, because I did do the return and I already have most of the information, so I will only be doing corrections, Rarely would I make you pay for extra forms unless they are major forms and would have added to the cost of the original return, and even then you would only pay the difference. Remember this is me and I own my firm and can set the prices as I see fit. Most others can not.
Here is where a major problem can exist. What if the person was just so bad and incompetent you do not want them to do anything for you. What do you do, and where do you go? You should now understand the importance of 'who did the return'?
Next I mentioned the 'Firm', who did the return or is doing the amend. If you take it back to a reputable firm and it is the preparers mistake, they should do it for free, I know I would. If it was your mistake, but you can find a way to blame the tax preparer (happens all of the time) the firm usually will do it for free, sometimes I will and sometimes I won’t.
But if you were so disgusted with the firm and go else where, remember what the others will have to do, and that is recreate the income tax return in it's entirety, make the corrections and that will not be done for free. I would hope you understand the importance of the firm you use as well as who did the return.
Finally, we add, 'how much effort' is going to be required to do this. This is where you may be redirected to other sources for your amend. Many simply will not want to do it regardless of how much they charge. They can see the hassle from the IRS coming and will walk away. This is very true, much more so than the average client could possibly be aware of. Tax professionals thinking is 'what is the point', when you cry about the fee they charge. They also know the IRS will audit this, and they know you will come back whining and crying, blaming them for everything that went, wrong. They will want no part of this and they will walk away from you. This happens all of the time too, so do not, for one second, believe that anyone will do an amended tax return, because many will not.
If experience has taught me anything, it has taught me to know when to walk and believe me when I say I walk, I walk, leaving the fee for someone else. Yes $500 is a nice fee but many times, maybe too many times, the hassle I see coming simply makes it not worth it. here is my point. We know you will be audited and we do not want to be part of the audit.
Here is some more information you may find useful to know. Speaking of hassles, many Attorney's, CPA's, EA's, and others, will no longer represent anyone at the IRS or the FTB. It simple is not worth the hassle, time or energy. I myself stopped, and will only represent people who are referred to me by an Attorney or CPA and I mean they must be referred.
Let us recap what we have read;
Why is it expensive?
One, the return must be reconstructed, someone must pay for that.
Next, it must be corrected and other forms may be necessary, someone will pay for that.
Next, once it is corrected it must be shown on a special IRS form and someone will pay for that.
And to make your day even happier, if you amend the Federal you usually must amend the State and guess what? Someone must pay for that.
I sure hope you are not the someone who must pay.
Here is the joke of all of this.
Who is going to do the amend for you? You have paid the price by trying to save yourself some money either doing it yourself or you used someone who simply was not that good and maybe was just cheap to use. Now you will pay again, big time, because the IRS is after you, and the State will follow the IRS. Now you know what will happen if you use someone cheap and you know there is a chance you may be audited. So again I ask, 'Who is going to do your amend?'