HOW TO APPLY FOR A TAX REFUND AFTER YOU'VE FILED --
         AND HOW IT MIGHT FINANCE YOUR BUSINESS

              It is very easy to file an amended federal tax
         return, and normally you may do so within three years
         of filing the original return (or two years of paying
         the tax).
              This is not something that will cause an audit,
         but if you are the nervous sort you can wait until just
         before the three year deadline.  In that case the three
         year statute of limitations on the original return will
         have expired, and only the amendments can be audited.
         But there is really no reason to wait, and you can put
         the money to better use than the government.  (The only
         exception to this is that if you have a refund pending
         for the same year, it is better to wait until you
         receive it before filing the 1040X.)
              State returns can also be amended, but you will
         have to check with your state for details.
              It does not matter what type of form you used
         originally -- 1040, 1040A, or 1040EZ.  Perhaps you
         filed 1040EZ and realized later that there were
         deductions you failed to take.  A Form 1040X is the
         amended return to use in all personal income tax
         claims, and all you have to do is calculate what your
         original return should have been.
              1040X is also the form to use if you discover that
         you made a mistake the other way.  To take an extreme
         example, if you claimed an exemption for the family
         dog, you can correct yourself with a 1040X.  It won't
         cancel your original sin, but coming forward with the
         correction yourself can do much to alleviate the
         consequences.  (The IRS reports that an amazing number
         of children disappeared the year after the requirement
         for listing a child's social security number on the
         return to claim an exemption took effect.)
              Anything on your return can be amended with 1040X.
         So if you see items that might have made a difference
         in your last three year's tax returns, get out your
         copies and recalculate the return as if you had
         originally deducted those items.  Then transfer the
         results to Form 1040X.
              If the changes require a schedule that was not
         attached to your original tax return, you can add it to
         Form 1040X.  For example, supposing you listed
         miscellaneous income as a line item on your 1040 but
         did not treat it as a business.  You now realize that
         if you treated it as a business you could deduct the
         expenses related to it.  All you have to do is complete
         a schedule C for the year in question, include the
         results on 1040X, and send it in.
              Since the forms change from year to year, you may
         need to get a schedule, return, or instructions for the
         prior year.  The forms are available from the IRS for
         several years afterwards.  Just write to IRS Forms
         Distribution Center, Box 25866, Richmond VA 23289 and
         list the forms and years that you need.  Let them know
         if you need instructions for that year (for example,
         because you need the tax table or exemption information
         for that year).  Usually they have the old instruction
         books also.
              If the instructions for the year you need are out
         of stock at the IRS, most public libraries keep several
         year's worth of basic tax information books, such as
         the annual J. K. Lasser tax guide, which will give you
         the necessary tax table information.
              Another IRS form, number 843, covers refund claims
         that are not part of a personal tax return.  Form 843
         allows a claim back for three years for such things as
         overpayments of excise taxes, withholding taxes on your
         maid, or corporation income taxes.
              There is one area in which a refund of back taxes
         can work miracles.  Most business losses in excess of
         the current year's income (whether proprietorship,
         share of partnership, or Subchapter S corporation)
         carry back for three years -- not just forward into
         future years.  This rule also applies to charitable
         contributions that exceed the limit for the current
         year.
              In both of these cases, you can use the amount of
         deduction that you can't use in the current year, and
         get a refund of the taxes you paid in the earlier
         years, up to the point that the entire loss credit is
         used up.
              You can also do this more than once.  For example,
         you have a current year business loss which gets you a
         refund of all of the third prior year's taxes and part
         of the second prior year's taxes.  If next year you
         continue to have a loss, the second prior year is now
         the third prior year, so it hasn't been wasted.  It is
         not too late to get back the rest of the taxes you paid
         that year.  In other words, two refunds for the same
         year!  (It is not impossible to have three refunds for
         the same year -- if first filed a 1040X in the current
         year for deductions you overlooked, then in two future
         years had a business loss that you could carry back.)
         Business losses can be carried back without using an
         amended return on Form 1040X, if you use Form 1045 to
         claim the refund within 12 months after the end of the
         year in which the net operating loss or credit
         occurred.  (Corporations can do the same thing on a
         Form 1139, to get a refund on earlier corporate taxes.)
         If it is after the deadline to use a Form 1045, you
         haven't lost out.  The same carryback loss can be used
         to claim a refund up to three years back, but it must
         then be done by using Form 1040X to amend the year for
         which the refund is being taken.
              It's your money -- don't let fear of the IRS keep
         you from claiming it.  And that cash in your pocket now
         is more valuable than the possibility of crediting the
         loss towards some future year's income.
              This technique can also help finance a business.
         Supposing,  that you lost a high salaried job, as so
         many have in recent years, on which you were paying
         high income taxes.  Tax refunds could be a reason to
         start your own business immediately, even if you are
         still looking for another job.  You open a business
         which has first year losses, a fairly normal situation.
         Immediately after the end of the first year (which
         might be only a partial year if you opened the business
         late in the year) you file a 1040X to carry those
         losses back to the third prior year, thus raising cash
         to finance the business.  For a high-salaried executive
         going into his own business, timing this can be a very
         valuable part of tax planning -- you may want to cram
         all the deductions you can into that first tax year of
         business in order to get the largest possible refund
         from an earlier year for financing your business today.
         And this financing is free money -- it is taxes you
         already paid and that will be lost forever once the
         three year time limit goes by.

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